Good afternoon, and welcome to the Intrexon first quarter 2016 earnings conference call. [Operator Instructions] I would now like to turn the conference over to Christopher Basta. Please go ahead.

Thank you, operator. Good afternoon. I am Chris Basta, Vice President of Investor Relations for Intrexon Corporation. Welcome to our first quarter 2016 earnings conference call. Joining me on the call today are Mr. Randal 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, and thank you for joining our first quarter 2016 earnings call. We certainly appreciate the support and interest from our investors. Earlier today we issued a press release with our first quarter earnings and we filed our 10-Q with the SEC. I hope that you have had the chance to review the reported financial results. We'll go into some detail on each of the following, but I would first like to summarize our first quarter results as follows. One, we made solid progress with our existing exclusive channel collaboration and joint venture programs. Two, we added three new exclusive channel collaborations in the first quarter. Three, we acquired EnviroFlight, which is developing a potentially high growth and sustainable technology in the food sector. Four, we activated our natural gas to isobutanol pilot plant. Fifth, we had positive regulatory developments with our Oxitec subsidiary and with several of our gene therapy programs. And six, throughout all this time, we maintained our capital efficient disciplines. These developments and more, reflect the outstanding contributions for Intrexon's 700-plus employees. I'll now give a brief update on activities and developments within certain of our operating sectors and subsidiaries, beginning with health sector. Intrexon's suite of technologies is enabling a number of gene/cell therapies for our collaborators. Our targets represent a broad set of diseases, including cancer, wet age-related macular degeneration, diabetes, arthritis, rare diseases, metabolic disorders, orphan skin conditions, infectious diseases, tissue repair as well as synthetic biology mediated production of APIs. Importantly, our expanding portfolio of technologies serves as the foundation for robust pipeline of new ECC programs that we are discussing with perspective and existing partners. We will of course support significant deals as they are closed. This year is expected to be a breakout year for our…

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

So I guess just kind of in order, how specific are you or how sure are you of the salmon delay? Are you waiting for some legislation or is that an approximate year or?

So the reference is to an act of Congress that was actually the spending compromise that I'm sure you read about a few months ago. And by force of law it will expire in one year, but of course Congress could renew it, assuming the President would sign it. It would take both houses. So this was a rider to the appropriations bill, which was sponsored, the rider was sponsored by a senator from the great State of Alaska. And it required the FDA to spend, if you read the text of it, it required the FDA to spend $150,000 to assess, whether our fish should be labeled in some way that's different from other salmon.

And then, second question, in the energy partner world, is success in isobutanol and success in 1,4-BDO? Are they highly interrelated? If you get one, is it easy to get the other? I mean, it's a big thing to get enough carbon kind of where you want it to go or are these very independent products, where success of one might not mean success of the other?

Well, I wish Bob Walsh were here to answer your question with technical detail. But my understanding, Tom, is that the answer is, it's somewhat both, both answer. In other words, are there early pathways in the process that are common to the mode? Yes. The later pathways are different, obviously. And we have some terrific in silico models, bioinformatic models on this organism, which is what we had before we even began wet wear on this exercise. And I'll say those models have held up very, very well so far. And based on our models, we believe that 1,4-BDO is extremely well chosen target. So I think you visited our facility in South San Francisco, correct?

Yes.

So we've been hiring there to build out the 1,4-BDO team, but we like all the progress with things so far there. I think what you're really getting is what's our security level overall on the methanotroph bioconversion platform.

Yes, sure. I'd love to know where you are in sort of a yield that --

We're not going to tell you that. But I can tell you, look, we are not going to choose targets that our models tell us are very, very difficult to achieve. Okay. We're not tilting windows here. When we began the work on the isobutanol, we believe that we would be able to make isobutanol, which of course we are doing. We believe that we could approach a post-theoretical yield in terms of carbon conversion, and that is certainly the case for 1,4-BDO as well.

And then last question. So the expansion into insects that might be involved in crop protection. Did Oxitec create a lot of these already? Is most of the work here development or you actually still have to draw on board, trying to figure out what insects to engineer?

Many of them are quite well along in terms of development. We actually have a deck on our website that details the stage development of several of them, I think maybe six. I think six of them are disclosed. I think as we move forward, we will, and you can expect to see more disclosures around these things. But I believe the medfly, for example, is actually being deployed in the field today. Given the number of times the chemical pesticide industry have claimed that they've defeated the medfly, we're really thrilled about and failed by the way. We're really thrilled about this one. There's quite a bit of peer review published data, for example, is it the diamondback moth, and I think that was field tested out of Cornell, right, if memory serves. And so those data are published that they're quite impressive. This target is an insect that causes between $4 billion and $5 billion worth of damage to the world's lettuce, cabbage and kale crops. And so there are several others. There are actually more than six in total. So I think the short answer to your question is several of them are actually developed to some point, and some of them are actually developed to an advanced level.

Our next question is from Jason Butler at JMP.

Just two from me. The first on the wet AMD program, I'm wondering if you can say at this point whether the first clinical trial will be in healthy subjects or patients? And if it's in patients, is there a potential to see any efficacy data from the initial study?

We're not at liberty. Remember, this is the joint venture that we have with Sun Pharmaceutical Industries and we're not at liberty today to discuss the clinical trial, the planned clinical trial protocols. What we are telling you is we'll file the IND this year. That's our expectation. I certainly get the relevance of your question, it's an important question. And I look forward to being able to answer it, but today we cannot.

And then on EnviroFlight, can you talk about what the path here is to commercialization and any color on, any timelines or market sizing you can give?

We think this is going to be potentially a very, very large business. So let me sort of setup the situation for -- let's just take one of the markets, and there are several, but obviously the main market as we've discussed is the protein feed supplementation market. What sensitized us to that was our involvement in aquaculture, where overtime, and overtime over last let's say three decades, four decades maybe, you've seen the number one protein feed supplement, which was fish meal, be utterly almost tuck entirely displaced by soy protein. So soy protein cost $0.20 a pound or something. Fish meal, it continues to be in high demand and several of these markets actually require fish meal. Aquaculture is one of those by the way. So you can't really grow salmon, for example, on a diet of 100% soy protein. So still has to be supplemented with some fish meal. And I haven't checked, it's been quite a while since I checked, but I know this sells for dollars per pound today. And that the trend line is for only increased prices, because long story short, look marine extraction is like the ultimate non-bio sustainable practice you could imagine. And I think everybody on the call realize that the number of fish available from the sea is declining so rapidly, it's just horrifying. You could look at it this way, at the present rate of extraction, our children will know fish to be a luxury good, our grandchildren will know fish to be something they see in aquariums and museum, unless we bring technology into the picture. So we've done that on the AquAdvantage side, I mean on the AquaBounty side in terms of producing fish that can be sustainably and industrially produced on land. On the feed…

The next question is from Tycho Peterson with JPMorgan.

It's Tejas on for Tycho. So first question here in terms of spinning off crop protection. Can you talk a little bit about just the strategic rationale of doing that and having a separate entity versus the way you were doing it earlier?

I don't mind sharing some of the strategic rationale. We've actually specifically mentioned it in, I think, in our press release, so I probably won't be able to go beyond the balance of that. But generally, I'm sure you'll appreciate the environment for this field. I know it's not exactly in your normal wheel house. But I think everybody knows that Syngenta is being acquired by ChemChina for $43 billion, Dow is merging with DuPont. Well, I could go down the list of competitors, but I will just say, it's increasingly verified field. What we see systematically and globally is that chemical pesticides are working less and less well every year. The response of producers to a great extent has been to use more of them to compensate. Needless to say, this is not environmentally sound and there is considerable environmental pressure to reduce the applications of these chemical pesticides. There are couple existing pesticides on the market that around the world are being withdrawn from the market due to environmental concerns. And certainly, it would be fair to observe that the chances of someone coming to market with the chemical pesticides in today's regulatory environment are actually pretty low. So against that backdrop -- and then just one other thing, we happen to own by far the most advanced genetically modified insect platform in the world and because of the number of geneticists and entomologists that we have there, we know that the biomarkers for pesticide resistance across these insects species that are agricultural pests and also human disease vectors are very well known today. So we can see genetically what is going on in these insects and they are rapidly developing tolerance to the main pesticides that are being used today. So clearly there is a great demand…

And then one question on Exemplar and the enforcement discretion from the FDA there for the miniswine model, how far away are we from seeing use in clinical trials by a large biopharmaceutical company? What are some of the puts and takes there in getting to that stage? And what does Intrexon or Exemplar need to do to get there?

First, I think you will see publications on our LDLR Yucatan Miniswine in the near future anyway. But you should bear in mind, there're really two businesses here through which Exemplar maybe employed. One is, yes indeed, we can make Yucatan Miniswine sized disease model established disease model, if you like. So where you would want something that is metabolically and maybe in some other respects, more similar to a human to test -- and as comparator to what maybe previously you only have a murine model. And those will be, I think, freely for sale as this pipeline comes to market. The other one I think is really more interesting, which is when you consider that there's something like the numbers approximately 7,600 monogenic diseases that have been chronicled. When you consider that the number of monogenic diseases that have actually been the subject of some sort of therapeutic candidate is in the dozens, I would point out that the reason for that delta often is that these are rare diseases and because they're rare diseases often the phenotype is not fully elucidated, meaning we actually don't know enough about the disease to really figure out a therapy. So I think the other interesting application of this technology is we didn't have an animal that is disturbingly similar to man, and actually create the monogenic disease in the animal and use this to actually elucidate the pathology phenotypically in a way that would not be possible before. And the reason I mentioned this is because these animals we will be making -- and actually we already have one of these, I think, one of these partnerships in play. So I'll tell you, these animals will be made in partnership with a therapeutic developer that has a deep desire to understand the pathology phenotypically. And therefore, you shouldn't necessarily expect to see publications based on these animals. In other words, we have the ability to keep the disease model proprietary, simply in order to elucidate the disease pathology at a level that is superior to what could be demonstrated by buying things that are already published. So we're talking about the custom disease models. And that's a very active part of Exemplar's pipeline.

One quick one on energy. I know you spoken a lot about the improvement in yields that you've achieved, and you also talked about the 500 liter pilot plant at the moment. Can you talk about your current output in gallons per day and how you've seen that trend over time? And at what point -- I mean what are sort of the milestones that you're tracking internally before you and Dominion decide to take it to the next level?

So first, quantitatively, we have not disclosed that information and we are not going to. We have always guided to the same milestones however publicly. And these are the ones that Joel commented on during his remarks that when you see Intrexon Energy Partners and Dominion Resources go forward website selection for the world's first commercial plant that should signal to you that we believe that we're in the money. We are not yet there, but we are tracking according to plan and we are very, very excited by what we're seeing. If they were a football game, I would say we are in the red zone. So that's why we can so confidently state that we think that our investors and we tell our Board this, I'm sure you know we think this is true. We believe that we will this year and we're very, very excited about this opportunity. And if you think about it, Tejas, this is very, very close to gasoline. I mean, we talked about it as a drop in fuel and as if it's like ethanol or something like that, that's the not the case. The reality is this is 98% of the energy density of gasoline is no more corrosive, which means it can be shipped, transported in the same way of gasoline. Eventually we could imagine a world -- you can imagine a world in which isobutanol would actually displace gasoline, that wouldn't be our first choice, because everybody would have to get new fuel injectors in order to do that. But we do think that -- and we do know frankly, if you have isobutanol that you produced at a satisfactory cost, you hand it to a gasoline blender to make gasoline, you will get gasoline, and that will be our first market. We think we will be selling gasoline and we'll have a biotech margin on one of the world's largest industrial commodity province.

The next question is from Robert Breza at Wunderlich.

Just quickly, if you think about piggybacking on the last question reaching commercialization on isobutanol, how should we think about reaching kind of real revenue or an inflection point around the Oxitec Zika virus outbreak? There has obviously been a lot of press, in news you've made some significant announcements in terms of approvals. How do we think about that commercialization to an inflection point around revenues of the Zika virus?

It is very fair question, Rob. Just as a thought experiment, I would invite you to think along the following lines. If you think about what a recombinant vaccine cost, okay, and if you imagine that, let's say, we could price at around that, okay, on a per person per year basis. And assume that we would like 10-year contracts in the markets in which we deploy, okay. So I think we have an advantage, in this case, over vaccines for the following reasons. At that price point, pick one of the viruses, say, dengue, okay. So assume that our price per person is on par with say, the recombinant dengue vaccine, right. So this means, you'd be hitting all the other arboviruses for free as a payor, right. You would be getting Zika, chikungunya, yellow fever for free. You'd be getting the costs of distribution and administration, obviously, which is far from trivial, for free. You'd be getting 100% compliance effectively for free. And also, you'd be getting all the arboviruses that are yet to come. I mean, I don't know if you read the JAMA article that was published yesterday about the sudden flare-up of yellow fever in Africa. But I can tell you, our team is very, very concerned about this, because the world had never been in worst condition in terms of the footprint of the Aedes aegypti mosquito. So I don't want to be alarmist about this, because we know how this plays out. But the point is getting rid of the disease-vector has been the number one way [technical difficulty] has dealt with these issues in the past. We had malaria I mean -- by the way, I don't know if there's anybody in the call knows it, the original name of the CDC was the Malaria Control Board. That's why it's in Atlanta, okay?

Okay.

How they wiped malaria out of the United States, by getting rid of the disease-vector. It was wiped out of Europe in the 1960s.

How do we get these government officials off their lazy butts to write a check? I guess that's the real question.

So let me tell you where we are right now. We are in our nation's capital, speaking to you now. And while I can't -- I'll just stand by our press release and by Joel's comments in terms of the kinds of dialogues we are having, but I'd just tell you, as compared to this call three months ago doors that were difficult and you wondered if they were even maybe locked, suddenly seem to be swinging our way. Three months ago, I was very frustrated, just as an American citizen I was frustrated. Today, I'm very encouraged. The meeting that I have here in Washington over the next couple of days are with very, very high ranking officials of the U.S. government and several other governments and what we're seeing around worlds now is actually impressing me. And I couldn't say that's three months ago. Three months ago, I was frustrated, you could probably tell. So I do think that people are realizing that that vector control is the solution that they really need that we really need. We firmly believe that we have the only field-proven, tested, environmentally-safe solution, and the reason I compare it to the biotherapeutic is that you would know that it is actually affordable in terms of the benefit that this technology should convey, its quite affordable. So we are really keen on this project and very, very dedicated to this task.

Next question is from Derik de Bruin at Bank of America Merrill Lynch.

It's actually Mike online for Derek. I had a quick question for you. My phone have dropped off, I apologize if you answered during the prepared remarks. What was behind the Trans Ova product revenue decrease, you mentioned the lower customer demand. Could you go into more detail about that?

I can't and I'll tell you why. I don't actually pay that close attention to Trans Ova product revenue. Let me remind you why? We didn't acquire Trans Ova, because we just wanted to own that business as such. We acquired Trans Ova because we thought as a marvelous platform upon which we could deploy our technology to drive this business into much greater heights. So the business that's practiced at Trans Ova -- I mean it's a wonderful, wonderful operation and I think David Faber and that entire team do a wonderful job. If you look at them in terms of market share, if you look at them in terms of their accomplishments, the number of ranked bulls in their field that came from their technology, it's like 15 out of 16 year-after-year, so they do a marvelous job. But that alone wasn't the basis for our acquisition here. The basis for acquisition was the realization that among all protein feed animals, the one that needs generic improvement was the cattlemen called genetic gain, okay. The most is the bovine species. I'll remind you that look we pay today about 25% measured in constant dollars of what our grandparents paid for chicken, right. This was done through two means. Number one, genetic standardization and improvement, which was then enabled applications of industrial engineering, because once you have a standardization then you can standardize this, the housing, the transportation, the storage, the food ration, the health regime, the downstream processing can then become automated, needles to say, almost none of that has happened in the bovine species, either in the $180 billion per year beef industry or the $180 billion per year dairy industry. So we saw that as a tremendous opportunity as a vehicle to sell improved genetics. We…

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

Just a couple of quick questions, just wanted to piggyback actually on the Trans Ova genetics question, can you provide an update with how you're progressing with increasing the yield of supreme cow embryos and are you reaching the milestones that you initially thought out when you acquired it?

I'd rather not talk about that today. We've rather actually achieve the milestones and bring things to market and tell you about it that that's okay.

The next question is from Keith Markey at Griffin Securities.

So I have two. It sounds very much like you're moving forward on an international basis with the Oxitec mosquitoes and might be able to get significant business very soon. So I was wondering can you expand your capacity above and beyond what your white paper on Oxitec that was recently published talked more trying to put this year and into 2017.

Well, yes. In two ways, I just want to look at my colleagues here to see if they have second-gen technology. So one of the ways, I can't discuss. But there is another thing that you should be reminded. The technology, the overall, in terms of a global footprint does scale pretty well, in the case of the Aedes aegypti mosquito. This wouldn't be the case for other case of mosquitoes, but there is a very fortunate fact with that relates to the Aedes aegypti mosquito, and that is that the eggs have viability for four months. So what this will enable us to do is, as we scale globally is to have a big egg production facility, right. And then on a local basis, or I should say, regional basis have eclosion and release down locally. Today, so far we've been doing, except every place in except one market, that's Cayman, was actually done on the basis I just described. So with the sole exception of that case, we have actually done local productions and eclosion and release. So there are some global economies when we create a factory that will produce the eggs. All of the eggs require in one location.

The question I had was based upon regulatory decisions of other products, I was wondering if you might be able to give us a reasonable timeline for final testing and commercialization of the product such as the diamondback moth?

So these are regulated by FDA under the INAD, so it's the same regulation that applies to our mosquito. I believe that's true. It's the same sort of regulation that applies to the OX513A mosquito, concerning which the FDA recently published a finding of no significant impact. So it's all is a fairly established animal drug approval process.

The next question is from Eric Criscuolo of Mizuho.

I didn't hear anything about the API programs in the script or I didn't see it in the press release. So could you maybe provide some commentary onto where those are and how they are progressing?

Absolutely. So again, we have partnered -- the ones that are partnered, right, which is all ones we have at the mature state, we can't comment. I believe we previously have disclosed that we've made a cell line delivery to one of our partners, so we've actually completed our work. With respect to a very major undertaking we're making, I think very, very good progress and our partner has -- I know that our partners is extremely pleased, but I'm trying to think about what we can say in terms of timing. Let's get back to you on that one, although, I didn't give you enough specificity, which I'm talking about. One of them, I don't mind telling you, one of them actually is, I do know something about, because it was deliberately chosen for its sheer technical complexity and the size of total addressable market. And that one I do know the timing. We anticipate having some news out on -- and this one was originally done, it was commissioned. We actually started to work on -- does anybody remember about two years ago. And this one was deliberately chosen because to our knowledge this would represent the most synthetic biology undertaken by any one to our knowledge. And we expect to have data out on this one. I think we're currently targeting September.

The next question is from Derik de Bruin at Bank of America.

Just I had a quick follow-up from earlier. You're talking about the works on in the Florida keys with the FDA finding no significant impact. And also the commercialization in [indiscernible] and the Cayman Islands that you announced just last week, I believe, noticing a trend that the two active runs of Oxitec being in the Cayman Islands and in Brazil, both of those locations had fire fuel trials. I'm just wondering how much that factors into your ability to negotiate commercial agreements, so that you have the trial set in that specific area? Is that just a coincidence or is that something that you think is really tangible boost to your negotiations and your conversations with government officials? And should we expect something similar going down the road from the Florida field trial?

That's a really good question. I think your question really has two faces. And I think one of them I can definitely validate, which is, obviously on the regulatory side, it certainly gives those countries more confidence, because they actually participated in the field trial. And so if you look at our work in Panama, for example, in which our scientist have published with their scientist of Gorgas institute, and they worked hand-in-hand on the field trial itself. This was the case in the Caymans between our scientists and the scientist of MRCU in Cayman. So, yes, I think in terms of early regulatory approvals, certainly it does help that people on their side of the deal have got firsthand experience. We're really looking at all the issues upfront, so we help to design the experiments in order to address the questions they had and so forth. Going forward, however, I don't believe this is the case. So we have numerous parties now who are looking at the data that we've generated in other markets. They are not asking us to replicate. Well, frankly, I don't mean this in any discouraging way, anybody can maybe listening here in town. The only country for which that would be applicable is the United States, in which they may want to just look at data produced within the United States. And I think everybody who knows the world of therapeutics knows how largely that is true, a sort of an American thing. But around the world, it's not nurtured to any significant degree. So I think what you say to is certainly true in terms of regulatory approvals in the early markets, the early adopters. It does give us a leg-up there. In terms of commercial dealing, other than dealing a desire to be as cooperative as we can with partners, with whom the Oxitec team has been working in some cases for years, there is really no commercial aspect to it. We're not really going to give much of an early adopter premium, because we know that other countries will just look at that price and it will come back to haunt us. So in generally we've got our ideas about pricing pretty much lined up with the way I described them earlier. If you think about the cost of a recombinant vaccine, you could think something in that ballpark. And then you readily realize the many advantages of this technology over a vaccine approach.

This concludes our question-and-answer session. I would like to turn the conference back to R. J. Kirk for closing remarks. End of Q&A

Well, thanks once again. I always find these exercises to be a little bit constrained, because we have to build them based on news flow. And I find this regrettable, because I just want to underscore a chief point about this company. The company's business was actually founded on the idea that we want to really maximize. We want to have the lushest portfolio of back-end commercial economics across as many industries and many products, products that we really believe in, products that we truly believe will be valuable as many as possible. And that's the focus of this business. So when it comes down to this call, and by the way, no criticism of the callers, in fact most of the questions we receive today actually did related to developmental progress. So it shows that at least people on this call kind of get it. But I just want to say, but I am constrained because I can't really talk at much about developmental progress outside of the things that we've disclosed. So I'll just come back to the sort of the lead-up point, and it's the reputation frankly of the point that we made three months ago, which is, we have always intended 2016 to be a breakout year for this company. And what I mean by that is, across these three tracks that we've talked about, number one, of course, we're going to continue to see growth. We're going to continue to see financial growth along the lines we've described, and operating under the financial discipline that Joel I think very ably described. The second thing is you will see the first instances this year and they will be across a broad array of undertakings. Projects that were initiated inside of Intrexon and you will see this…

This concludes our conference for today. Thank you for attending. You may now disconnect.