Welcome to the Intrexon Corporation Fourth Quarter and Full Year 2015 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Christopher Basta, Vice President, Investor Relations.

Thank you. Good afternoon. I am Chris Basta, Vice President of Investor Relations for Intrexon Corporation. Welcome to our fourth quarter 2015 earnings conference call. Joining me on the call today are Mr. Randall Kirk, Chairman and Chief Executive Officer, 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 www.dna.com. Now I would like to turn the call over to Joel Liffmann, our Senior Vice President of Finance. Joel, the floor is yours.

Thank you, Chris. Good afternoon. Thank you all for joining the Intrexon fourth quarter 2015 earnings call. We certainly appreciate all of the support and interest from our investors. Earlier today we issued a press release with our fourth quarter and full year 2015 earnings and we filed our 10-K with the SEC. I hope that you have had the chance to review the reported financial results. As we have discussed in past calls and investor meetings with many of you, our goal is to attain a large portfolio of economic interests and products with significant potential across multiple industries, along with the commitment to do so in a capital-efficient manner. We're pleased to report to you that Intrexon's 700-plus employees delivered an outstanding performance in 2015 in support of that key tenant of our business model. And for the second consecutive fiscal year, we achieved our goals. We measure capital efficiency as the ratio of technology access fees, plus cost recovery revenues, plus product and service revenues, divided by total cash operating expenses. In 2015 this ratio equaled 133%. In other words, we took in greater than 1.3 times the cash we expended to operate our businesses as we continued to develop and expand the highly promising programs with our ECC and joint venture partners. We ended the year with 30 collaborations and I'm pleased with the progress being made toward commercialization across all of our programs. Within the health sector, our collaborators are currently utilizing Intrexon's suite of technologies in cellular and gene therapies against the broad set of diseases, including cancer, wet age related macular degeneration, diabetes, arthritis, rare diseases, metabolic disorders, or from skin conditions, infectious diseases, tissue repair, as well as synthetic biology mediated production of APIs or active pharmaceutical ingredients. Our immune-oncology program had…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Tom Shrader with Stifel. Please go ahead.

Good afternoon. Can you hear me?

Absolutely. Hi, Tom.

Hi. I had a couple of questions. The first is on the Oxitec maths. So you reduced the number of mosquitoes 80%, but infections go from 133 to 1. Why is the reduction in infection so much lower? Do you need to get bit more than once or is there something subtle there that explains kind of the disconnect?

No. We're not citing the reported reduction in infection as an epidemiologic finding. That was an anecdotal finding that was observed, you know, by the city fathers in Piracicaba. So we'll have epidemiologic studies as we go forward and we'll be able to track this in a more, I will say, scientifically rigorous way, Tom. But we thought the anecdotal report was interesting and compelling nonetheless. So what you saw -- what you saw in Piracicaba after all was a reduction in the, you know, in the larvae count of 82%, while you're still really in the middle of the wet season. And that to us is really the most significant number. So this is very much on track with our previous field trials data. So we expect the ultimate result on the reduction of the mature mosquitoes to be well over 90%.

Okay. Okay. And then kind of a remedial isobutanol question. Does the viability of that program track the cost of accrued oil or do you just need to be cheaper and better than ethanol? Could you explain the decision to blend and how that affects what you do?

Yeah, that's a really good question. So when we first modeled this, we were in a world of $100 oil and $5 gas. Right? So as long as those ratios approximately stay consistent, then not only -- we're not just the same, we're actually better. And the reason we improved in a low cost environment is because of the difference in CapEx becomes more and more meaningful when the difference in variable costs, you know, declines. Get it? I mean, when the total variable cost declines, right? So we think overall the thing has definitely swung our way. The second observation I'll make is, even if on the current spot basis the ratio, you know, will get out of line, then we wouldn't be concerned, until we were looking at a situation in which they were very much out of line with that ratio on say a 10-year forward basis. And so the point I want to make now is, you know, look, whatever oil is trading at in the spot market, I don't think anybody can buy a 10-year forward contract at that price for oil, right? But you can for gas. There are plenty of people in the Marcellus and the Utica that'd be thrilled to sell U.S. supply of gas for the upcoming 10 or 20 years out of a buck and change [ph] per million BTU. So in terms of industrial planning values, we're feeling very, very good. We think the overall pendulum has actually swung in our direction.

Okay. And then just one. For this program, when do we actually know you have reached sort of commercial viability? Will it be sales? Will we know before then? I'm kind of - this is such a big program and in some sense so hard to gauge. Can you help us out there with when we know you've made it or what Phase III data will look like?

Absolutely. Fair question. Well, we've always said, Tom, and I'm sticking with this answer, we -- you will know that we think we're very much in the money, that we have achieved our commercial target, our initial commercial target, which of course we'll continue to try to improve over time. But you'll know that we've achieved our initial commercial target when we break ground on that commercial scale plant with Dominion Resources.

Okay, perfect. Gives us something to wait for. Thanks a lot.

Thank you, Tom.

Our next question will come from Derik de Bruin of Bank of America Merrill Lynch. Please go ahead.

Hi. It's actually Mike Rifkin [ph] on Derik's line. I had a couple of questions on the timing of the facilities. Hello?

Yeah, we hear you.

I had a couple of questions on the timing of the facilities in Piracicaba. You mentioned the second facility that you initiated recently, the capacity cover of 300,000. How is that progressing? Do you have any sense for when it will be online? Also, you know, taking account of the five-month delay between when you start implementing the solution to when you're seeing the decrease in the wild mosquito population.

Yeah. So we can't give a precise timeline on when they'll come online, but I can tell you, I actually got a report on this yesterday, we're very much -- we're moving very, very quickly. And we'll update you on this I think in the very near future. So we think that we're driving the project with urgency, but we can't give you a specific time. It doesn't take very long. We just mentioned that, you know, in general, the entire technology around Oxitec 513A has not only incorporated the genetics on the mosquito but it's also incorporated a modular production design, which is why we're able to have the kind of efficiency and the kind of numbers that we have here. So we're -- and that's the reason we can be bold. You know, as Joel mentioned, we can be bold in saying we're ready to deploy. We get asked quite frequently, could you cover an entire country? Could you do, you know, could you cover an entire major city? The answer to all of those questions is yes, we absolutely can.

All right. And if I could ask a follow-up on Oxitec, and actually extends to AquaBounty as well, since both of these are wholly or partially-owned subsidiaries and they're not ECCs, they don't have the -- a lot of the cost defrayment that you have with the collaborations. Do you have any insight into, with Oxitec, whether the government will defray the startup costs or the production facilities and also what those costs involved, both for Oxitec and for the AquaBounty ramp-up?

Yes. So we actually do have quite a bit of visibility into a huge array of possible deal structures by now, as you -- since we told we're going to dialogue with numerous agencies and numerous governments. But I don't think it's fair to any of those parties to, you know, to provide a survey on that now. But in general, I can't say this, our overall view is that we have an ability here -- bear in mind, I mean, and we see this in Piracicaba, that what we have to provide is an initial suppression phase which is followed by more minor ones in the previously treated areas as we expand out into additional geography. So what we think we will be looking at here will be multiyear control contracts. And that essentially is what we're going to price. Then we'll be able to respond. Remember, our mosquitoes have a genetic marker that allows us to quantify them against wild type. So in real time we'll be able to monitor and then respond to flare-ups of wild type mosquitoes. So what we're really -- what we really have on offer here, it's intended to be on offer, I will say, as soon as we obtain the necessary regulatory approvals. But the idea here is that we'll be able to provide a complete solution over an extended period of time.

Okay. Thank you very much.

Our next question will come from Robert Breza of Wunderlich Securities. Please go ahead.

Hi, Robert. Hello?

Mr. Breza, your line is open.

Sorry. I had you on mute. So quickly, just as a follow-up on that last commentary. When you're thinking about the dominoes that need to fall to get, you know, there's obviously 30 countries that are now, by the World Health Organization, having issues with the Zika virus specifically, when you think about the dominoes to fall for you to get this kind of, let's say, ramp in full force, is it getting the labeling approval in Brazil that's going to take over some of these other countries, or how do you think about the milestones to get this in full force?

Yeah, I can say, in several of our dialogues, in our many dialogues actually with multiple countries, I don't think that the Brazilian regulatory status has any impact on any of those discussions. So we have -- as Joel mentioned, we have vast amount of data here, over 100 peer-reviewed journal articles, etcetera, and we're ready to deploy. So we are fully educating a lot of constituents right now and we're more, you know, we're completely capable of doing that. So, no -- there's no single condition precedent to our ability to go forth in any country. But to your point about Zika, you know, Zika has actually just shined a spotlight on an area that already was quite significant, and I think, in my view at least, considerably under-appreciated. And that was of the arboviruses more generally that are transmitted via the Aedis aegypti mosquito. So for example, you know, the worldwide morbidity and mortality on dengue was already reason enough. And so if you look across the globe, really pretty much everything in between, say, 35 degrees north and south latitude, you know, it's over 100 countries. And we think all of these represent attractive markets. The countries that do not yet have reported Zika but that do have dengue and chikungunya, we think can expect Zika in the very near future, I'm sad to make that prediction, but it is the fact, it's the case.

Maybe just as a follow-up, if you look at other opportunities in terms of fruit flies, etcetera, on the agricultural side, it would seem to me that that would be a market sizing that would be maybe 2x, 3x the mosquito given the destruction to agricultural crops. How do you think about moving in that direction towards, unfortunately, other insects?

Yeah. Again, I think the agricultural pest market, that side of Oxitec's business, is going to be a very significant one. We have several insects in the pipeline at various stages of development and field testing. And so we think this too is really going to be a very significant business. There are things I think you can find on the Oxitec website that are really quite compelling. And so for example, one project I think that was field-tested at Cornell targets an agricultural pest that is reported to cost growers of lettuce, cabbage and kale between $4 billion and $6 billion per year. So these are clearly very compelling applications of the technology in our view and, again, subject to regulatory approval, we're very eager to roll these out.

Great. Thanks for taking my questions.

The next question will come from Tycho Peterson of JPMorgan. Please go ahead.

Hey, Tycho.

Hey, RJ. How are you? I'm not going to ask you about mosquitoes, how about that?

Okay.

Maybe just starting with the EnviroFlight acquisition and the JV with Darling. Can you maybe just talk about milestones we can track? And have there been studies on the impact of introducing these larvae into animal feeds both in terms of enhancing feed consumption and growth, as well as any sort of long-term effect?

Yes, there are feeding studies in the literature that had been reported, plus the Company has feeding studies that we've done historically -- that had been done historically, and that are -- that will be underway soon. We think that, you know, in general, you get the idea. Poultry and fish are natural insectivores. The joke that we've shared, you know, among our team is, do you think that a free range chicken really tastes better than an industrially-produced chicken because it lived a happier life, or might it be dietary? So, one thing we can tell you for sure is that this is an extremely high-quality source of protein at a very attractive price point. So, in response to the first part of your question, when will you see? Look, we and Darling are committed to building out an enormous production facility. And if that goes as well as we hope and expect, we plan on building, many, many more. I think this is -- this can be a very, very large business. We came to appreciate this business of course due to -- because of AquaBounty and our experience there. It should be borne in mind that basically the way the world works in these feed supplements -- protein feed supplements is that over the last couple of decades -- pardon me -- soy protein has come to really rule. So I think, I can't remember the exact number, but it's got to be like $40 billion, $50 billion a year worth of soy protein basically selling for, you know, something like 20-something cents a pound. Okay? As I mentioned, not only is it a flavoring issue to totally feed an animal soy protein, but it's also a health issue. So the reason that sea-caged salmon are commonly…

Okay. And then just maybe a point of clarification on some of the earlier questions around Zika. I mean, the WHO, given the timing ahead of the [inaudible] we do expect a decision from them -- I guess, how do we think about the news flow around Oxitec and maybe just touch on the dynamic around vaccines as well. I mean, Sanofi, you know, was not cost-effective for dengue, but how do you see them weighing Oxitec versus a vaccine approach which could maybe have more of an impact in the short term?

Yeah. I'm not sure it would have more of an impact in the short term, even if a vaccine were available. But if you think about it, what you're seeing with Zika in particular, Tycho, is that this is a virus that attacks neurons. So, you know, it's pretty clear, and I think that's been established in the literature actually since the 1950s, so this is really not a new finding. Since it does attack the neurons, I think the thing that, and I'll tell you our own Dr. Broder is the one who, at least on our team, has thrown up the red flag on this, since you know that it does cause Guillain-Barre syndrome and also microcephaly, it's likely, at least entirely must be considered possible, that it can cause other CNS disease as well. So I can't imagine anyone really wanting to sponsor a vaccine as a live attenuated virus of this particular Flavivirus and testing it in pregnant women for example. And I'm not saying that to be contentious because obviously there is no such vaccine. I'm just saying we're not really worried about vaccines. Every time somebody says, this has been true perhaps my entire business career, and I'm not a biologist but I do consider myself at least a fair student of business, I think every time someone has said, "I'm going to do a Manhattan Project to do X," that is always a bad thing. It never works, since the original Manhattan Project, of course. So if you exclude the hype around it, look, Sanofi tells us that their dengue vaccine took something like, was it 20 years, $1.5 billion, and 15 years plus, I know. And so I expect that you're probably looking at a timeline like that before a vaccine could…

Okay. And then last one, over on the human health side, Merck. Any update on when they may start their CAR T trials and how they're progressing?

I have to defer to Merck on that. They -- I can't tell you, as we mentioned in the press release, that we're making very, very good progress. I'm actually authorized to tell you that both partners are very pleased by the progress we're making. I would ask you to note just what we -- and Tycho, you were on our IPO so I know you remember our S-1, so I'd ask you to remember back in August 2013 what we said our strategy around acellular therapeutics really was. So as we described the terrain at that time, we thought that the work of Dr. Rosenberg and Dr. June [ph] was absolutely phenomenal, absolutely demonstrating an extremely powerful potential generation of therapeutics that could actually lead to the significant cure and/or management, successful management, of cancer. I think cure is probably the better term. However, there are -- there were significant technological obstacles that keep this technology at least so far from demonstrating real utility and practically anything outside of CD-19 CAR T at this point. So while we've seen several companies plow ahead running basically with a very high set of costs and therapies that really have to be administered in, you know, very top-flight research institutes in order to manage the side effects that are associated with the on-target toxicity and so forth, we just didn't consider that the motif as practiced by the first-generation of companies in this field is really workable, or to kind of put it in drug development parlance, is it a drug? Our conclusion is no, it's not. So we weren't interested in joining that race because it's -- we think it's a race that ultimately leads to nowhere, except for the fact that obviously three or four companies are going to have a successful CD19 CAR T. But beyond that, I'm not really sure what they're racing for or toward. What we realized was that there were significant technical hurdles that needed to be overcome. We focused on those hurdles. We highlighted how some of our technology could help us get over those hurdles. And based on all that, I will say we're very, very pleased. Just what -- in summary, let me just say, please remember that our strategy here is not to raise to the clinic as fast as we can go with a me-too [ph] CAR T or TCR. Our strategy here is to leapfrog the others technically. We think we've shown a lot of really encouraging data that lead us to believe that we'll be able to do that.

Okay. Thank you.

The next question will come from Andrew D'Silva of Merriman Capital. Please go ahead.

Hey, good afternoon. Thanks for taking my call. I just got a couple of quick follow-up questions. If you could, following on with the IET-1 [ph] talk, I remember you had to meet certain milestones before you were able to launch that facility with Dominion. One I think that was pertinent you mentioned was continuous platform. Is that still progressing and on track? And can you give a little color on how that's evolving today?

Yeah, we -- are you referring to our pilot plant? We'll have a news on this out within a few weeks, I suspect.

Okay, great.

That's the plan. In other words, it's nearly complete and we're, you know, we'll update everybody on this in the near future.

Okay. I'll wait and see what you have to say there. And then just quickly over to the food sector. If you could maybe give us an update with Trans Ova. I think, you know, one, if you're seeing the yield in the amount of embryos being produced from the supreme cows, are you initially expected to increase, is that taking place? And then two, has the expected demand for said embryos altered much from your expectations, you know, when you initially acquired the company about a year and a half ago?

Yeah, it's been pretty consistent with our expectations on what I could call our base case model. But remember that our thesis was. Our thesis was and still is that we can drive the costs of the embryo production down while improving the genetics. And so the, you know, you can think about two potentials for growth here. Yeah, it's a great business as it is. But the two potentials for growth are, as we can drive cost down to some significant degree, what we see is tremendous price elasticity around the world that could really help you grow this business. But you really need to get the cost down. That part we're very, I'll say, we're confident we can achieve that, because we have a lot of engineers, a lot of bio-engineers, and this is really just going to a high throughput kind of environment using off-the-shelf technology, but applying it to a peculiar case in which we have peculiar expertise. Beyond that, there is a more ambitious case. And in that case, we hope that we could eventually drive the costs down to a point at which our embryos actually become competitive with other forms of bovine reproduction. And that one frankly gets us really excited when we think about the -- what that could mean to the world in terms of the ability to drive improvement in bovine genetics and what it could mean to our company and our shareholders from a financial perspective.

Okay. Good there. And then just kind of moving over to the ECCs, and just kind of discussing your pipeline. When we first started looking at the Company a while ago, the ECCs are primarily companies that would have milestone payments, along with cost recovery, and then some sort of backend economics. And then Johnson & Johnson announcement. And they're doing more of an R&D collaboration. Has anything changed structurally there? Or are you still seeing ECCs versus R&D collaborations being the primary mode of partnership going forward?

Yeah. Ultimately the primary form is I think going to remain the ECC, as well as the joint venture, on occasion. What an ERC is intended to do, if you like, the exclusive research collaboration, is bridge from, let's say, a partner has done diligence on one of our platforms or more than one and really fallen in love with it. But we're not spending shareholder money to actually develop very many therapeutics ourselves. We have -- we would rather spend that money in proof-of-concept experiments to build out new platforms, and that's what we're doing. And we have several of those underway. So, rather than our allocating capital to specific therapeutic projects, what we rather do is show these, under confidentiality of course, show these platforms to partners -- potential partners, I should say, who might have -- might know how they would like to utilize that. What the ERC allows us to do is bridge to the time when the partner has the sort of data that would allow them to, well, to put it in sort of maybe a tumor scenario where meet our price of an ECC.

Got it. All right, that makes a lot of sense. I guess just one last question here, since you done it in past calls. What would you grade Intrexon in 2015, if you could?

I'm glad you remembered this. So this time, just to remind everyone, this time last year, I think I told on this call, one year ago, that I had graded the team in a companywide missive at yearend a B-minus for their performance in 2014. I did send a similar note out over the -- over New Year's weekend this year. And the grade, and I do consider myself a strict grader, the grade I awarded was A-minus, with a qualifier, and that qualifier was, and I do believe this, that the only reason they did not get an A-plus was because I did not perform as well as they deserved.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Randal Kirk for his closing comments.

Well, thank you very much. Thanks for joining the call everyone. I'm not going to speak very long. I'll say that I'm more energized than ever and more grateful than ever to where I am today, to be where -- to see this Company where it is today. I think we're at a genuinely historic moment in the history of the world. And we have the great privilege to really lead what I think is shaping up to be an absolutely wonderful industrial vector. I was on the West Coast this last week and met with over 100 of our colleagues at our labs there. And I wish there was some way I could convey in a few remarks the fervent, diligent intensity of dedication and the quality of the people, the level of talent that I see deployed in this Company. It's truly inspiring. It inspires me. So let me just thank the team. We have 750 now colleagues, and so let me extend my thanks to them. Let me extend my thanks to our Board, does just a tremendous job for all of the shareholders, and of course ultimately let me thank our shareholders as well.

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