Intrexon's (XON) CEO Randal Kirk on Q2 2016 Results - Earnings Call Transcript

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Intrexon Corporation (NYSE:XON)

Q2 2016 Earnings Conference Call

August 09, 2016 05:30 PM ET


Christopher Basta - IR

Randal Kirk - CEO

Geno Germano - President

Joel Liffmann - SVP Finance


Tom Shrader - Stifel

Jason Butler - JMP Securities

Tycho Peterson - JPMorgan

Ryan MacDonald - Wunderlich Securities

Derik de Bruin - Bank of America Merrill Lynch

Keith Markey - Griffin Securities

Andrew D'Silva - Merriman Capital


Welcome to the Intrexon Corporation Second Quarter and First Half 2016 Earnings Conference Call. All participants will be in listen only mode. [Operator Instruction] Please note this conference is being recorded. I would now like to turn the conference over to Christopher Basta. Please go ahead.

Christopher Basta

Good afternoon. I am Chris Basta, Vice President of Investor Relations for Intrexon Corporation. Welcome to our second quarter 2016 earnings conference call. Joining me on the call today are Mr. Randal Kirk, Chairman and Chief Executive Officer; Mr. Geno Germano, President and Mr. Joel Liffmann, Senior Vice President, Finance.

During this conference call, we will make various forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements, with respect to revenues, earnings, performance, strategies, prospects and other aspects of Intrexon's business are based on current expectations and are subject to risks and uncertainties.

A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the Safe Harbor statement contained in the earnings press release, which was released earlier today and is also available on our website under the Investors link, as well as Intrexon's most recent SEC filings for a more complete description.

The press release references and our discussions this afternoon may reference certain non-GAAP financial measures including adjusted EBITDA and adjusted EBITDA per share. Reconciliations to GAAP measures are contained in the earnings press release as well as on the Investors section on our website at

Now, I would like to turn the call over to Geno Germano, Intrexon's President. Geno, the floor is yours.

Geno Germano

Thank you Chris. Good afternoon everyone and thank you for joining our second quarter and first half 2016 earnings call. We certainly appreciate the support and interest in our company. Earlier today we issued a press release with our second quarter earnings and we filed our 10-Q with the SEC. I hope you have had the chance to review the reported financial results.

And before I get into discussion of the quarter and our outlook for the remainder of 2016, I would take this opportunity to discuss the few observations that I have since joining Intrexon as President about two months ago.

For starters, our technology platforms are outstanding and enable us to pursue exceptional opportunities across all five of our market sectors. The company is executing well against aggressive plan for the robust pipeline of 30 plus collaboration already in place. Progress towards commercialization of several important products is becoming more visible each quarter and I’ll touch on some of these in just a moment, of course all of this is being driven by contributions from the talented employees across in Intrexon.

Additionally after spending 30 years in big pharma where developing on drug candidates generally succeed to fail in a more or less black and white manner. It's very exciting for me to working with the innovative platform technology that have broad application across multiple market segments. Once we make our technology platforms work for one application the next application is somewhat de-risked and our ability to engineer new products perhaps expanding several of our sectors, utilizing that technology as enhanced.

To provide you some examples, a few of these platforms in house today include our L lactis platform, where our ability to engineer this microbes produce a variety of bio-effectors is now become well established. We already have six collaboration underway around this microbe in our health and food sector and we are just scratching a surface of its potential.

Methanotroph bioconversion platform, our engineering work with a methanotroph bacteria continues to modify this unique microbe deliver fuels and chemicals at high efficiency and low cost, leading to higher projected margins for wide variety of products across the broad range of markets.

Moving to microbes to organism, what's been accomplished in insects at Intrexon and its subsidiary Oxitec truly amazing. The ability to target a single X insects spices that is damaging crops or study disease without and incrementally impacting the environment open the door for large opportunities for Intrexon across three verticals that we focus on health, agriculture and the environment.

Our switch platform is at the forefront of inducible control and regulation genes for biobase products spanning therapeutics, gene therapy and agriculture. The simple point is we have cutting edge tools that engineer target cells or organisms into factory that can produce a number of biological effectors or bio-based effects that have broad applicability

And moving on the quarter, in this quarter we saw a revenue grow 17% year-over-year to $52.5 million. Adjusted EBITDA was $110.7 million and we recovered 279% of our cash OpEx to deal money, cash recovery and product and services revenue. Our team delivered solid progress across many of our existing collaborations initiated another exclusive channel collaboration and announced plans to spin a portion of our Oxitec's Crop Protection subsidiary, which is dedicated to biobase control of agriculture pest and disease during two of our platform -- using two of our platform technology.

And here we will go to more detail around some of our subsidiaries and collaborations. Starting off with Oxitec, from the deployment perspective Oxitec was granted a significant expansion in Piracicaba, Brazil with a program grew in size to protect 65,000 people in total, up from 5,000. The increase commitment from Piracicaba is a testament of the promise of our innovative solution and the severity of threat associated with dengue, Zika and chikungunya transmission through the dangerous Aedes aegypti mosquito.

In addition we recently report a data from Piracicaba's Epidemiologic Surveillance service that showed during the first full year of deployment of our Friendly Aedes solution and the CECAP/Eldorado district, there was a 91% drop in the number of dengue cases compared with 52% reduction in the rest of the municipality, demonstrating that our solution cannot only reduce the number of mosquitoes in an area but also can reduce the disease transmission that occurs with those mosquitoes. We look forward to see in this promising effect on a larger scale with our expansion into Piracicaba's downtown city which started last month.

Oxitec also initiated second deployment program in the Cayman Island during the end of July. This popular trust estimation welcomes over 2 million visitors annually and we are honored that they chose our solution to help combat mosquito and the disease that it transmits.

In the United States, Oxitec has recently receives a final finding of no significant impact from the FDA for a trial in Florida. This important finding came after expensive review by the FDA whose team consisted of experts from the FDA center for veterinary medicine, the centers for disease control and prevention and the environmental protection agency. We are encourage by this regulatory development for our solution at the forefront of a new paradigm in effective mosquito control.

Our pipeline with Oxitec strong and we continue to engage with agencies and numerous government and non-governmental organization in multiple countries and municipalities .We expect our ongoing negations to lead to brooder adoption of Oxitec solution in 2016. In anticipation of increase in demand, we started construction of a new plant in the Brazil in the second quarter, which we expect to come online within the next three months. And also started planning our first large scale, egg factory to help meet anticipated demand.

Now moving on the food sector. During the quarter AquaBounty, AquAdvantage Salmon received commercial approval from Health Canada, roughly six months after U.S. approval by the FDA. Having these two countries open there door for this healthy wholesome and more environmentally-friendly fish to find its way to supermarkets and ultimately the consumers is a positive development. Field trails in Argentina and Brazil have also come actually. AquaBounty also acquired an additional hatchery facility for scale up of commercial Salmon eggs production. We remain confident that the AquAdvantage approach will play a meaningful role in the $11 billion Salmon market and that future applications of our technology and aquaculture will produce additional species to further compete and the $150 billion global aquaculture industry.

During the quarter in EnviroFlight, our joint venture with Darling Ingredients focused on animal feed markets was presented with DSM innovation award in aquaculture which honors transformative innovation within the aquaculture industry. And EnviroFlight scalable production of black soldier fly larvae have substantial potential as plentiful source of high-quality, high-nutrient feed for the aquaculture and we’re pleased with this recognition of our approach. Before moving on from food, here is some additional developments from the quarter in this sector.

Trans Ova’s overall business was slightly weaker then we expect during the second quarter, mainly on the product sales side of the business, given continues cyclical weakness in cattle demand. We continue to invest in reproductive technologies that will drive Trans Ova’s future growth and profitability. Our Okanagan subsidiary completed in 70,000 tree planting goal for 2016 and have 300,000 tree schedule for planting in 2017 and over 500,000 trees under contract for 2018. Okanagan’s pre commercial launch is scheduled to begin in the fourth quarter of this year. And we continue to invest in broadening this non-browning technology to other apple varieties as well as additional fruit and vegetables.

Moving on to the consumer sector, during the second quarter we entered into an ECC with AD Skincare a startup backed by the Harvest Fund. AD Skincare is focusing on the development of the advanced topical delivery system their aim is to deliver biologically active ingredients to improve signs of facial aging. In addition to the delivery system AD Skincare will also screen and develop new biological actives for anti-aging skin care.

In the energy sector, as recently presented at the society for industrial micro-biology and biotechnology conference our methanotroph program tool box development has progressed to the point of near equality with yeast-based programs. This unique micro consumes nothing via natural gas as its energy source, enabling an inexpensive source of carbon to be converted to more valuable fuels and chemicals. As you likely know both IEP and IEP2 utilize this promising bio-conversion platform, with respect IEP, our pilot plan had its first full quarter of operation and we continue to make progress with isobutanol yield improvements. While so early IEP2, which is targeting 1,4-butanediol or 1,4 BDO which is used in plastic and polyurethane is tracking to plan.

Shifting to the healthcare sector, and Intrexon’s suite of technology enabling a number of cutting edge of gene and cell therapy products for our collaborated expanding a broad but a therapeutic applications in Cancer where diseases, infectious disease, optimality and other areas.

During the quarter, we announce certain elements to our ZIOPHARM Oncology, ECCs in the fields of oncology and graft-versus-host-disease to improve alignment between both companies as ZIOPHARM broadens its pipeline and advances multiple therapeutic programs into the clinic, including control gene therapies, non-viral CAR T, viral CAR T and NK cell platforms and non-bio TCRs. ZIOPHARM recently announced plans for Phase 1 clinical trial using lentiviral base CAR T to express CD33 CAR in patients with relapsed or refractory acute myeloid leukemia which have very poor prognosis. This will be the second trial we initiated with the MD Anderson Cancer Center under the R&D agreement between ZIOPHARM, Intrexon, and MD Anderson. We expect to hear more from our partner on this program as the year progresses.

With respect to ZIOPHARM's non-viral CAR T approach, data from the first in human non-viral Sleeping Beauty CD19 CAR T-cell therapy was just published in the general of clinical investigation. Results showed favorable long term follow up in patients that received either entomologists or organic CAR T therapy. Our teams continue sto advance Sleeping Beauty designs in both CAR T and TCR and we look forward to reporting updates as a program continue to advance. We also continue to be encouraged by the data from the Phase 1 clinical trial utilizing our RheoSwitch control Ad-RTS-IL-12 for control production of IL-12 via gene therapy in patients with glioblastoma. While early we also believe the data has positive implications for ZIOPHARM's plant combination trial with RTS-IL-12 and a checkpoint inhibitor in glioblastoma.

During the second quarter, our collaborator fiber cell initiated patient recruitment for Phase 1 clinical trial receptive dystrophic epidermolysis bullosa, a rare disease impacting roughly 5,000 people worldwide using FCX-007, they are lead gene therapy candidate develops injection with Intrexon. In fact, fiber cell just announce in a role of first two subjects in this trial during July and expects to treat the first patient by yearend.

Fiber cell second gene therapy candidate developed in conjunction with Intrexon is FCX-013 for the treatment of linear scleroderma which impacts roughly 40,000 patients worldwide. During the quarter FCX-013 received Orphan Drug designation from the FDA. More recently our collaborator Agilis Biotherapeutics announce the gene therapy candidate AGIL-FA is the first gene therapy to receive Orphan Drug status in a rare disease known as Friedreich's ataxia. This two recent Orphan Drug designations now brings the total to six which Intrexon related programs have been granted Orphan Drug designation, five in the U.S. and one in Europe.

As many of you know this designation provide our collaborators with development and commercial incentives including seven years of market exclusivity in the United States, prioritized consultation by FDA on clinical sites and clinical studies, and certain exemptions firm or reductions in regulatory fees.

Additionally in health, our subsidiary Exemplar Genetics, ExeGen low-density lipoprotein receptor miniswine became the first genetic, we engineered many swine model reviewed and cleared by the FDA for commercial use as a research model. This model is design to enable superior translational research and better predictive efficacy in the generation of new treatments for cardiac disease. This powerful investigation of platform is generated interest from several players in the gene and cell therapy space and we currently have up to a dozen additional models in Exemplar’s existing pipeline.

Finally I'd like to touch on the formation of Intrexon Corp Protection or ICP, ICP is a wholly-owned subsidiary dedicated to the biological control of agricultural pests and diseases.

Through utilization of Oxitec's diverse self-limiting gene platform for insect control as well as our ActoBiotics system for the expression of targeted biological for pests and disease management programs, our approach is designed to precisely target single pest species, thereby avoiding many off-target effects of conventional pesticide applications on broader ecosystem. We believe this fills a meaningful gap in crop protection for high-value products, where existing approaches are increasingly inefficient due to safety of and insect resistance to chemicals as well as pest resistance to genetically engineered crops. This platform currently has two collaborations with leading players in the agricultural industry.

Several milestones and objectives were achieved during the quarter and we've been building out team under the leadership of Dr. Sekhar Boddupalli, President of ICP. As stated previously we intend to spin off a portion in Intrexon Corp Protection to our shareholders subject to various conditions. We also recently introduced Florian technology an on-off regulation switch system that exhibits the capability to regulate the timing of flowering, as well as selectively activate specific plant genes through topical application of an activator. Initial application efforts with existing and new agricultural partner will focus on near-to-market opportunities in turf, floral, and forage industries. We look forward to updating you on our progress in the future.

With over 30 collaborations approximately $321 million in cash and equivalents, equity securities with the market value of approximately $39 million as well as preferred stock were at that $120 million a portfolio of operating subsidiaries with outstanding management teams and business prospects we existed the second quarter of 2016 in a strong position to execute our strategies in this year and beyond. Thank you.

Christopher Basta

Operator, we'll take question.

Question-and-Answer Session


[Operator Instructions] Our first question is from Tom Shrader of Stifel.

Tom Shrader

Two questions out of 202, but you made the comment that the methanotroph efficiencies are nearing those of yeast, what is that mean? I mean they start with different things, they make different things, can you give us a sense of what you’re quoting there?

Geno Germano

Well, really what it means is that we're able to engineer the microorganism as well as you can engineer yeast, which is -- it has more, we’re more experienced with. So we're getting to the point where we have confidence in our ability to engineer the outcomes that we're looking for.

Tom Shrader

So it's sort of total carbon as numerically the total carbon conversion is the same or just not sure what's metric that's quoting?

Randal Kirk

Tom, this is RJ. What it means is we're getting to the point in our knowledge of the metabolic pathways of the organism itself. The methanotroph that is becoming as predictable and as facile as yeast is.

Geno Germano

It wouldn’t be appropriate to make a direction comparison carbon-to-carbon as you know because methanotroph by definition is taking in a completely source.

Tom Shrader

Okay and then just one sort of large picture question, you renegotiated the ZIOPHARM relationship, you have a pretty dynamic new head of ZIO, who has got a lot of ideas of its own, is the plan still for everything Intrexon does in oncology to go through that mechanism, you have kind of, your own large immune-oncology for it. Is it still all going to be through ZIOPHARM or is the change in royalty may be assigned -- you will do things outside, just curious if you’re comfortable talking about, where that might go?

Randal Kirk

As we discussed in the past it is a very broad field that ZIOPHARM enjoys and to be clear to the best of my recollection the field is something like in vivio expression of anticancer effects for the purpose of cancer therapeutic or prophylactic effect there was a subsequent amendment that removed those motifs that would target primarily on infectious organism, even given all that it’s a very broad grander field, it doesn’t post on ZIOPHARM obviously, a corresponding diligence obligation. So while I can’t today make a prediction. So whether whatever by narrowed, I can say today, most of the things we’re working on in cancer are in partnership with ZIOPHARM.

Tom Shrader

And so it is already in ability for them to sort of Opt out if the pipeline gets too big, because of the diligence requirement?

Randal Kirk

That would have to be a negotiated matter.


Our next question is from Jason Butler of JMP Securities.

Jason Butler

Just first one on the, the update on the Oxitec pilot project in Brazil and you spoke that the 91% drop in dengue cases, can you just speak to how, when you’re working with the government from different countries right now, they are asking to design these kind of studies and what they are looking for a specifically and are you seeing a corresponding drop in both mosquito count and disease in the areas, that you’re looking at?

Randal Kirk

As to the best of our knowledge, this is the only study that has made that comparison, that has made the comparison between reduction and mosquitoes and reduction in disease incidents.

Jason Butler

Okay great and when you think of the design of these studies, do you think that this kind of study is what governments are looking for to get confidence in efficacy?

Randal Kirk

No I think that entomologists and research oriented scientist will certainly be interested in some of our applications and doing epidemiologic studies. In fact we have ongoing dialogs with a number of the international and also nationally based, organizations that would like to do these studies in tandem with our deployment. You shouldn’t use the price to see those. On the other hand, I don’t think that it’s a -- don’t think that people are looking for as a condition president, certainly this is not the palace with the FDA, I mean our trail that hopefully will beginning underway and the keys is focusing on the endpoint of reduction in mosquitos, the thing on the implement of reduction in mosquitoes.

But on the other hand, I will just mention, the relationship between disease vector control, this is not a new thing right? The relationship between vector control and disease incidences is actually historically pretty wide to acknowledge, I mean there is a reason in that -- the historic reason why the CDC is located in Atlanta, Georgia I doubt few people on this call -- I doubt many people on this call will know the reason and the reason is they were formally the malaria control board. And they essentially wiped malaria out of the United States through disease vector control.

Jason Butler

Great that’s helpful. And just a quick question on the IEP pilot plan, can you just review for us your goal for scale up for 2016? And do you still expect to be at commercial scale in 2018?

Randal Kirk

It's hard to nail down expectations in this field. Geno and I spend a lot of time with Bob Walsh Head of our Energy sector, we think that this is probably our largest single team deployed to one single object in the entire company. It's a fantastic team, but as Bob is fond of pointing out to Geno and I, look when you are doing a world's first instant things it's not always a linear progression or as he said, it’s not a straight line.

So I can't today tell you exactly what's dates, we will be at various yield points. But we can observe that we have made tremendous progress, the numbers are tracking very well. And we do still anticipate the timing that you mentioned, that’s our goal. But I can't tell for sure that we will hit that goal. And for the reason stated, obviously our scientist are dealing with technical issues actually they discover technical issues that no one else had ever encountered before, some of them they solved, some of them remain to be solved. But our -- overall our performance is very good and our yields continue to improve.

Jason Butler

Great, helpful. And just a last bigger picture question from me, thinking about the crop protections spin out and that structure, can you just speak to what was specifically you sound appealing both to Intrexon and you, do you feel would be appealing to shareholders in that structure and if it's the structure you think has a flexibility in other industries?

Randal Kirk

It will have applicability from time-to-time, but let's review and it's a very good question. So why did we find this compelling case, in this case to really somewhat depart from our normal business model in order to surround a project with its own enterprise management team, its own balance sheet, in fact its own -- ultimately we intend and expect its own publically traded security.

The reason was as follows. We actually have relationships with companies on our collective platform in agriculture, we have relationships with companies pertaining to the GM insects for the reduction agricultural pests and we were fielding numerous in bound enquiries on both platforms, pertaining to agriculture. We realized that there will be economies of scale and production in regulatory, in commercial and commercialization and that the use of either of this platforms, they continued use and the continued development of each of this platform will accrue more knowledge to us.

So we recognized that in order to capture the economies of scale that would flow if you kept them all in one place, than rather than partnering out individual insects and that kind of things, it will make more sense to put them in house, put them in this case ICP and recruit an executive team that is focused on that enterprise. So while we can't say we'll never do it again, I can't say that we'll always think to do it either. I think the fact and circumstances of this case really drove us to this conclusion and because of some accounting and tax accounting matters that are really somewhat beyond, its understanding that we'll be able to make this dividend to our shareholders on a highly tax favored basis.

And as we demonstrated last year in the case of our dividend of $190 million worth of platform shares, I think its incumbent on a management team to deliver value to shareholders when it can't. And so this really accomplished every -- it accomplished multiple objective in one project. So we've very keen on it and we're excited about its prospects.


The next question comes from Tycho Peterson of JPMorgan.

Tycho Peterson

Maybe just starting on [indiscernible], RJ or Geno can you give us a sense of capacity and how quickly you can ramp to meet demand on the larger scale? And then any real world implications from the FDA finding and matter of fact there are a fair amount of consumer pushback from locals the pilots are being contemplated?

Randal Kirk

You're talking about the scalability of what precisely?

Tycho Peterson

Your Oxitec capacity, how quickly can you ramp?

Randal Kirk

Well right now in order to treat a new territory we would put in completely vertically integrated plant that will proceed from egg production to the rearing of the larvae and pupae and then actually sort of headquarter of the insect release. So I think the startup time on this plant is around five months from start to finish to get into business. We're examining plants today that will allow us to accelerate that as our discussions around the world become broader in their geographic reach, we've learned that this particular mosquito has eggs viability of at least six months which means that should be possible for us to build a centralized or maybe two or three semi-centralized, if you like, egg production facilities to supply the world demand and in that case we would be able to deploy more quickly than in five months.


Next question is from Ryan MacDonald of Wunderlich Securities.

Ryan MacDonald

Just quickly on following up from that previous answer about the 2 to 3 centralized products production facility, is the facility that you're currently building the extended facility in Brazil, is that one of -- would that be considered a centralized production facility?

Randal Kirk

No, it's a fully integrated facility.

Ryan MacDonald

Can you just describe that -- or I guess extend upon the difference between the two, sorry?

Randal Kirk

Yes, so what we just today as we produced the eggs and then we rear those eggs into larvae and pupae in our production environment and then depending on the release method, we package them into the release packages for release in the field. So that's what a fully integrated facility does.

What we're seeing is that we think that we could -- we may be able obtain some significant economies of scale through centralized egg production because these eggs are viable for at least six months. So that means we could centralize the egg production portion, which is actually the hi-tech part, and then we could, in the field do the lower tech part, which will be the rearing of the insects and there release.

So the real answer is today, in answer to Tycho’s, it’s five months, five months is five months, right? But what we’re pointing to is the fact that we have a team that is working on this now to see if we can get that number down. Significantly by building, initially one, and then we’ll move to others centralized egg production facilities.


[Operator Instructions] Our next question is from Derik de Bruin of Bank of America Merrill Lynch.

Derik de Bruin

I have another Oxitec question. So with regards to the field trial in Florida, what were the additional requirements before the trial could commence? Now that the FDA has issued a finalized [indiscernible], our understanding is that there will be a referendum on municipality in November, is that the last hurdle or is there something else that you need to do before you commence, do you have any additional criteria and what’s the readout on the trial, is it six months?

Randal Kirk

We’re unaware of any further hurdle, and I’m actually sure when the readout is, it’s in the study design. I will observe a kind of -- sort of time period that you mentioned does -- has shown in our trials conducted elsewhere, a very significant knock done of the [indiscernible]. But I’m not sure exactly when the read out is, it should be on something on that time scale.


The next question is from Keith Markey from Griffin Securities.

Keith Markey

I was just wondering, if the demand for the Trans Ova products and services varies significantly with the price of cattle herds and meat prices?

Randal Kirk

On the existing business, as Geno indicates it’s very much subject to the cyclicality of that type of market. But you should bear in mind that it wasn’t because of that market that we made this acquisition. We made this acquisition because we believe that we could obtain a more advanced understanding of the reproductive biology of the bovine species and that we could apply engineering in order to make frozen bovine embryo [technical difficulty] product for us at a much lower cost than is possible today.

So we continue to work towards each of the objects, in the biology and in the engineering and we’re very encouraged by everything that’s going on there. But look, I’m a business person first and last, I’m the last person in the world to walk away from some numbers, the numbers are the numbers, but I just want everyone to bear in mind that it wasn’t an interest to go into cattle farming or ranching, that was the underlying reason for this particular acquisition. This acquisition allowed us to obtain the best expertise in the world in vitro fertilization and high throughput creation of frozen bovine embryos that can be shipped anywhere in the world.

That as a gating item is an essential platform and now we’re applying more advance reproductive biology and engineering to that task to see if we can really make this leading platform for the improvement of bovine genetics both dairy and beef. And ultimately if we really succeed on this thing it could compete significantly in the field of reproductive biology.

In other words, if we can get these the cost of these embryos, knowing their genetics down to a price point that is low enough then this could become a significant play in how you make new cows.

Keith Markey

Thank you. And that one point I think you were even talking about advancing the same approach to other species and can you tell us a little about whether not you are moving in that direction as well?

Randal Kirk

We have some projects going on in pigs both in the United States and in China. But our first target is in the bovine species. If you think about our overall food strategy, we’ve talked about this before, its protein feed animals -- food animals rather and specialty crops. So if you look across the entire stand approaching food animals there are two opportunities that immediately loom large, one is AquaCulture and I think that one is pretty obvious, the economics of AquaCulture especially when you bring it on land and do it in a recirculating aquatic system it is a truly game changing.

And as Geno mentioned I think he shared numbers with you just a moment ago, it's just a phenomenal opportunity especially given the asset we have in the AquAdvantage salmon. The other one is in the bovine species because when we cost with cattlemen around the world and this is true up to the present time, the number one thing they want is improved genetics. So this is true worldwide and it's ultimately because the feed conversion ratio on the cow really hasn’t moved. In the last 50 years the feed conversion ratio on the chicken has dramatically improved and consumers really, I think we're all spoiled by just what a marvelous industry that is. If we could achieve that kind of delta in bovine, then this is an enormous, absolutely enormous opportunity.

So as we said we are excited about it, it looks like the worthwhile objective for our efforts and we’re continuing to pursue it.


The next question is from Andrew D'Silva at Merriman Capital.

Andrew D'Silva

Just one quick question here. A couple of calls ago you mentioned you have completed the development of an API with one of your ECC partners and I was wondering if there is any additional insight you could provide on that, have you started to generate revenue from the commercialized ECC product, or you have any other APIs that are in your queue ending their development of stage?

Randal Kirk

Two questions there, although we’ll [multiple speakers]. No, we can't disclose who the customer was or where they are on it, but I’ll say that was made for delivery of the cell line to the customer. I can tell they are scaling it now and they intend to use it. But I don’t have greater color than that to offer you on that.

With regard to when the next one, we are actually hopeful of seeing the next one completed in the near future, I can't give the exact date. But I think one of the largest one that we have been working on for some time, a very ambitious target is showing very good results of the present time and both the team and partner are very excited, Geno and I had report from them recently on this. But I don't think we're in a position to give a date certain as we to when that project will wrap up.


Next question is from Tycho Peterson of JPMorgan.

Tycho Peterson

Just one follow-up RJ, can you talk about the rationale for amending the ECC with ZIOPHARM and testing you operating profit there?

Randal Kirk

It's actually related to the question we had earlier on this topic. I think there was some Tom Shrader, right. So ZIOPHARM in order to fully execute its diligence obligation on our fields, in other words really to do all of the things that we could do in this field, needs to be able to finance itself. And we became concerned and as ZIOPHARM became concern that under our 50% operating profit obligation that that could prove difficult and realistically Geno and I talked about this, this is a good and we spoke and we had a very candid conversation with our Board about it.

So as you might imagine this was a very well-considered item as other Board and at ZIOPHARM’s Board, certainly by the management team before that. We think that it was very much in our interest to do the amendment. If you ask my personal opinion, I think within our interest to do the amendment as zero consideration. But the lawyers tell me that I am not allowed to have that personal opinion, so let me tell you our corporate opinion, it was a very fair transaction on both sides.

It wouldn’t have been very difficult for ZIOPHARM really to form the kind of -- as I mentioned, to form the kind of capital, they probably will need as they get a lot of these cell therapies in the clinic. Their expenses will increase and I think investors at that time might baulk at ponying up the kind of money ZIOPHARM would have to raise, if they're running multiple Phase 2 and 3 trials, as we really anticipate they will be doing in the future.

The second thing is, again this is really just a personal observation, but as you know Tycho I’ve been involved in the sale of the few companies, and we should all recognize that under that kind of obligation ZIOPHARM would essentially never be a target, would never really be an acquisition target under a 50% operating profit obligation to Intrexon.

So we do think it was in our interest across the board to make this -- to agree to this amendment and I do think that it really serves the interest of both parties very well.


Our next question is from Ryan McDonald of Wunderlich Securities.

Ryan McDonald

Just on the Okanagan business with the 70,000 trees now being planted, can you remind us when those would be reaching the market for sale in 2017?

Randal Kirk

Sorry, are asked me how long does it take to grow apples from a new tree just planted?

Ryan McDonald

Just looking --.

Randal Kirk

Two years.

Ryan McDonald

Okay two years, so then revenue opportunity there would not necessarily be until 2018?

Randal Kirk

Yes, on anything that you planted in 2016, then you have fruit in 2018, you have your first fruit. I wouldn't focus so much on the numbers today, you should bear in mind that what we're doing, we're actually brought an orchard now, I think are we buying or leasing the second orchard, we’re leasing the second orchard.

In order to grow enough graphs wood and I think the last number that Geno mentioned in his comment which was I think 500,000 -- half a million graphs will have for this next year. That's really cool and so what you could expect is this kind of geometric progression.

Obviously we think this is an outstanding asset, one that is truly, how can I put it, potentially eclipsing in the category. The Apple industry has been in a state of decline for many years and we think that this asset, this technology really addresses the main reason that is so. As Neal Carter who heads up his team and really created a Mac it really has said in Apple today, a whole Apple today represents more of a comments then a modern consumers really cares to make. He is not wrong, and so we think this is really wonderful technology. And so my point is, I wouldn’t focus on 70,000 tree; 300,000 trees; 500,000 trees, except to realize that this represents a geometric progression that we think will continue to expand in time for many years.


This concludes our question and answer session I would like to turn the conference back over to management for closing remarks.

Randal Kirk

Terrific, thanks for everyone for participating. I just want to close by mentioning one thing, this is almost to the day, you say the ninth. So our Company became a public Company three years and one day ago. So happy birthday to us, happy birthday to XON at least as a public Company and one of the most rewarding things of my entire carrier has been to watch this Company mature.

We rolled out a novel business plan in January 2011, no one had ever heard of the exclusive channel collaboration, that were something we really -- I could go back even early and just the whole, the UltraVector architecture itself was still a novel and Tom Reed’s creation and Tom’s the founder of this company in ’98, we should acknowledge.

So get our first business, we adopted an unusual business model, it was experimental, it was every bit as experimental as some of the underlying science. And we executed on that model in January 2011 and we built a very unusual organization, it’s not even shaped like other organizations, it’s a few quite a while to sell Geno on it as a matter of fact, he’s be the first to admit to you. He was fine with the once I told him that both the divisions and the matrix and the vector would stop at him, his is okay with that matrix as long as it all stops with him, so that’s cool.

But my point about that structure is that’s really going to enable us to scale and we’re really seeing the benefits of that. Giving this a level of scalability that I frankly have not seen in any other business in the life sciences. So we began that and then, we had some targets, we had some objectives, business targets as we began to really morph this thing into a real business. And then we get our IPO three year ago and we said at that time and I think many people on this call will remember that we had some financial targets in mind. They weren’t your unusual kind of financial targets, there wasn’t, that we expect earnings [ph] from the business, it was like, look we want to get the 50% cost recovery of cash OpEx by the first quarter of 2015, we expect deal money to represent the other 50%, we think that this is such a huge return area for investment that we would really like to afford the perceivable future take any surplus above that and really invest it in this field.

So we executed that plan, while we continue to roll out our business model and by the second quarter 2014, we accomplished those financial objectives, and we’ve been able to maintain them ever since. I am feeling very gratify at this point and then we -- of course we then went to work on the next thing we would have to work on if Intrexon would really succeed in the way that we had planned and that is this company badly needed professional management. And we need to be able to recruit the best and the brightest people in the world in order to execute the mission, because this is a very ambitious mission that we have.

So I am really delighted, I talked about it in the press release here. I am really delighted to see first of all on an almost daily basis our report from HR that shows the new hires, so we are growing organically, practically every day. The current number of employees is --.

Joel Liffmann

Over 800.

Randal Kirk

Joel said over 800. And we continue to grow, on a good day I’ll look at these reports on HR and look at the background of these scientists and I am just blown away. And so we continue -- on a good day we will see five or six of these things, so very, very exciting. And then as we think about the higher executive ranks, we’ve really made some outstanding contribution recently that give me tremendous confidence that Intrexon is going to be a real figure in the world going forward.

So very recently we announced that we have recruited Andy Last, who’ll be out new Chief Operating Officer, I think starting at the end of this month. He’s phenomenal, it's very difficult to find somebody with his level of character, with backgrounds across so many disciplines that are of relevant to Intrexon and on top of that and being a nice guy and being that intelligent, being the hardworking, he happens to British which will enable us to translate, because of course I can tell you, you can guess which division, as President Kennedy once observed, which division of ours we actually have the greatest level of communication problem with -- it's Oxitec of course, just kidding. Not entirely kidding. But I think was that Kennedy's line or in on it by a common language. So anyway very happy to have Andy on Board and we are all really looking forward to working with him.

Then finally I want to mentioned to my right here Geno Germano, look I think most people know Geno is too modest to ever mentioned this and he’s never told me this, but I know for a fact. Geno was beyond doubt, probably the most highly recruited senior life sciences executive in the world, when we were able to convince him to join the Intrexon. And if you’d like to talk to him or have access to his psychiatric file you have to check Geno on that but, I’ll say we are very gratified and pleased to have his leadership here.

We previously announced that even when Geno joined us on June 1, we announce that there is plan here for Geno to inside of two year becomes CEO of this company which would allow me to transition to Executive Chairman, which in reality, I think many of you know this will allow me pretty much do to the part of my job that I actually probably do okay.

So it’s not like you’re ever going to lose me, but I just want to mentioned that -- and then Joel joined us one year ago, recently Fred Hassan has come onto our Board, and I think by the way main people observe too, I think we have the best Board in the -- arguably of any corporation in the world. And we see this stuff throughout the organization.

So a level of talent upgrade and the people who are joining us now, like Geno and then I just want to mention now having work with Geno for couple of months, I can say that everything I was hoping this organization would get by having someone like Geno joined us has really come true. I just want to extend my thanks to him.

Geno Germano

Thank you. Operator.

End of Q&A


The conference is now concluded. Thank you for attending. You may now disconnect.

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