Precigen, Inc. (PGEN) Q4 2016 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Intrexon Corporation Fourth Quarter and Full-Year 2016 Conference Call. All participants will be in listen-only mode. [Operator Instruction] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Christopher Basta. Please go ahead.

Good afternoon. I am Chris Basta, Vice President of Investor Relations for Intrexon Corporation. Welcome to our fourth quarter and full-year 2016 earnings conference call. Joining me on the call today are Mr. Randal Kirk, Chairman and Chief Executive Officer; Mr. Geno Germano, President; Dr. Andrew Last, Chief Operating Officer; and Mr. Joel Liffmann, Senior Vice President, Finance. Slides that will be presented on the call today can be viewed on the Events/Conferences page in the Investors section of our website, dna.com. By clicking on the link for Intrexon Corporation fourth quarter and full-year 2016 financial results conference call. 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 discussion 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. Now, I would like to turn the call over to Geno Germano, Intrexon’s President. Geno, the floor is yours.

Thank you, Chris, and good afternoon, everyone, and thank you for joining our fourth quarter and full-year 2016 earnings call. We sincerely appreciate your support and interest in the Company. Earlier today, we issued our earnings press release and filed our 10-K with the SEC. I hope you’ve had some chance to review the reported financial results. During the quarter, our team continued to deliver solid progress across many of our 30 plus collaborations, we furthered the commercial activities of our subsidiaries and advanced several of our marketable products. And I'm going to begin my comments updating you on Intrexon's marketable products portfolio and then move on to a discussion of the outlook of our health sector and then turn things over to Andy to discuss our divisions and some exciting development projects that are underway there, and finally, Joel will cover our financials. So starting off with our marketable products portfolio, as detailed on Slide 4 of the presentation, we saw progress on both the regulatory and production fronts with our Friendly mosquitoes or Arctic apples as well as the AquAdvantage Salmon during 2016. From a regulatory perspective, we were pleased to see additional approvals for our Arctic brand from the USDA and ended the year with commercial pathways for three leading apple varieties the Granny Smith, the Golden Delicious, and the Fuji and we have others on the way. Our Salmon also saw regulatory approval from Health Canada, opening our second large consumer market for AquAdvantage Salmon. Finally, our mosquitoes received support from leading organizations globally including the World Health Organization, Anvisa in Brazil, and the FDA. On the production front, we achieved our first commercial harvest of Arctic apples and planted approximately 70,000 more Arctic trees. We completed construction of our first large mosquito facility with the capacity to create 3 billion Friendly mosquitoes annually and AquaBounty added a plant in Canada to a system scaling production capacity. Moving onto our outlook for 2017 for Oxitec, we believe we have the best Vector Control Solution to combat what is now increasingly recognized as the most dangerous mosquito species known to man, the Aedes aegypti mosquito. We anticipate expanding our engagements in existing countries including Brazil and the Cayman Islands. We are also intensely focused on initiating new contracts in the United States and additional countries. One recent development on regional expansion is the commencement of large scale trials in India. Under our current plan, we anticipate moving to open field trials in late 2017 or early 2018 paving the path to a large commercial opportunity there. To put the size of the Indian market into perspective, consider that dengue alone, not including Zika or the recent outbreak to chikungunya, in fact an estimated 5.8 million people in India annually will cost exceeding $1 billion a year. In the Cayman Islands, the Cayman’s government recently issued a statement on the ongoing Friendly Aedes project there, detailing strong results in noting that the program is firmly on track. As a reminder, this is the first phase of an anticipated island wide treatment that began in July of 2016. In Brazil, the continued success of our programs is very encouraging. The positive results are exemplified by the overwhelming support of 92% of the community in recent polls and are also increasingly being recognized across the country with additional – through additional region. Based on our business development pipeline, we anticipate the egg capacity in our Piracicaba factory maybe fully spoken for with new contracts in 2017. In summary, we expect on going negotiations to lead broader adoption of Oxitec solution and we have begun discussions to build our first large scale egg factory to efficiently covered global expansion. Okanagan Specialty Fruits is set to begin its first commercial rollout of fresh sliced Arctic apples in the fall of 2017. In our view, the consumer benefits of this unique product will drive a significant inflection and the adoption of sliced apples-and-apple products. We believe this business going to eventually reach $1 billion per year in revenue with attractive margins and return on investment. We have 300,000 trees under contract to be planted this year and over 500,000 more for 2018. Importantly, we expect the Arctic apple will have a meaningful margin advantage over currently sliced apples products because we eliminate the chemicals and production costs for preservative coatings. AquaBounty is now U.S. a listed company as well and is well-positioned to pursue a substantial agriculture opportunity. As we discussed on our last call in November, a production of AquAdvantage Salmon in land based tanks, not only avoids the excessive use of antibiotics and vaccines in farming Atlantic salmon, but also avoids exposure to all ocean based parasites such a sea life commonly affect fish thrown in the sea cages. AquAdvantage Salmon will be raised and controlled indoor environment with a predictable production schedule. This solution offers a high quality product, which can be produced closer to consumers than salmon imported from Chile and Norway. All of these characteristics are attractive to sellers in the multi-billion dollar Atlantic salmon market. AquaBounty has recently been approved by a number of large distributors, AquaBounty has already been approached by a number of large distributors, and have a positive discussions with retailers as well. AuqaBounty and interacts on our highly engaged and site selection discussions and we expect AquaBounty to solidify a site and begin construction of its first land based RAS system in the United States this year. Now moving on to our health sector, now we experienced some timing disappointments in 2016 with several milestones, but it still achieved solid progress across most programs, at the forefront with the encouraging overall survival data from ZIOPHARM and its lead gene therapy candidate 80 RTS IL12 in recurrent glioblastoma. These data are especially exciting considering they represent a clear demonstration of utility of Intrexon RheoSwitch technology which we believe has the potential for broad utility in oncology and many other therapeutic applications. As you are likely aware ZIOPHARM has also been driving an effort to reduce the time and costs associated with manufacturing and delivery of CAR-T cells with the goal of making them a bedside point of care option for cancer patients. They have recently reported progress in this endeavor and presented promising early data with the achievement of a complete response in a Phase I trial utilizing a second generation Sleeping Beauty design. Additionally, at the pre-clinical stage ZIOPHARM shared some exciting data on third generation Sleeping Beauty CAR-T cells co-expressing a CD19-specific CAR and membrane-bound IL15, which achieve production time of less than two days and resulted in impressive anti-tumor effects in this mouth model of leukemia. This short production time highlight the potential of non-viral approaches versus viral approaches in CAR-T and other ex-vivo cell therapies from a manufacturing perspective. In rare diseases, our Collaborator Fibrocell initiated a Phase I/II trial with FCX-007 gene therapy for the ultra orphan indication of Recessive Dystrophic Epidermolysis Bullosa or RDEB debilitating genetic disorder. Fibrocell also received orphan drug designation from the FDA for FCX-013 for the treatment of linear scleroderma. One of our other collaborators Oragenics also received fast track designation for their leading clinical candidate AG013 that is heading into Phase II trial that utilizes our ActoBiotics platform. Lastly, in 2016 we expanded our health programs via new collaborations to develop treatments for celiac disease, chronic rhinosinusitis, neuropathic pain, and cancer indications. Moving on to Slide 9, as you can see here recent developments include an end-of-phase 2 meeting with ZIOPHARM and FDA for Ad-RTS-hIL-12 in recurrent glioblastoma. ZIOPHARM expects to announce the meeting outcome during the first quarter with a goal of initiating a pivotal clinical trial in 2017. Also we are excited by our second CREDA with the NCI and his team Dr. Steven Rosenberg, a pioneer in immunotherapy. CREDA is for the development of immunotherapies for patients with advanced cancers using autologous PBLs genetically modified using the Sleeping Beauty to express TCRs targeting neoantigen. We look forward to working on the CREDA with Dr. Rosenberg’s team and tapping into Sleeping Beauty’s unique potential to express neoantigen specific TCRs to develop individualized immunotherapies for cancer patients with solid tumors. We are pleased to report that the first RDEB patient was dosed last week with our FCX-007 gene therapy in a Phase I/II trial being run by our Collaborator Fibrocell Science. We expect to see initial human data before the end of September 2017. As detailed under anticipated milestones, you can see that we expect to see our platform enabled gene and cell therapeutic candidates make meaningful progress this year in the transition into human trials in oral mucositis and infectious disease, rare diseases, ophthalmology and cardiac disease. On Slide 10, we've laid out for you a more detailed clinical development outlook for 2017 to provide a better understanding of how we are positioned within our health sector This table shows a few things of importance, most significantly is the Company's positioning to begin to make a difference in the lives of a substantial number of patients across a variety of unmet clinical needs. Our prominence of the understanding that Intrexon's research and development work is for the most part complete once INDs have been filed. At that point, our partners and collaborators advance our technology enabled therapeutics into and through the clinic. The only time this is not the case is under a joint venture subsidiary where we share the cost and then return receive a much higher potential return in the backend as you can see at the bottom of this table. While we obviously cannot project eventual commercial sales at this juncture, we believe the power of the Intrexon model for our shareholders from a cost and royalty perspective is substantial. One final takeaway before I hand the call over to Andy, this is the beginning of our transition from bench to clinic. As you can see on Slide 11, we have a deep pipeline of additional health programs including type 1 diabetes, type 2 diabetes and many more. With that said, I'll now turn over to Dr. Andy Last for an overview of our divisions in select development platforms.

Many thanks Geno. Before I begin, let me state as Chief Operating Officer of Intrexon, I oversee the multiple technology divisions and operating subsidiaries and have been tasked the driving execution outcomes in improving efficiency and effectiveness in the application of the Company’s assets. One of our key assets clearly is the deep team we have of approximately 600 scientists. And in my role I have the good fortune of seeing the tremendous work of these talented employees and today I will cover some of the groundbreaking projects underway across the several of Intrexon's divisions. Firstly, in our agricultural bio division, I will highlight two of our ongoing projects that are on the cutting edge of science and synthetic biology. The first is the Florian on-off gene switch for flaring control and selective activation of specific plant genes mediated through the topical application of an activator. Slide 13 provides a snapshot of a time release video showing control of flaring through Florian and details the diverse range of beneficial agricultural applications including the large commercial opportunity in improving yield and quality of select forage crops. The second disruptive innovation in our ActoBio division is the ongoing work in the regeneration of plant cells. This proprietary approach considerably exceeds results of standard growth protocols and enabled the high throughput plant culture platform that can be used for speeding up the development cycle of efficient transformations and mass propagation. We project the commercial opportunities of high throughput plant regeneration to be quite significant. For example, speeding up genetic pain in crops and for rapid development of plants that produces valuable ingredients. In our human therapeutics division, our team is consistently pushing back the edges of genetic engineering. Slide 15 provide some detail around new leading edge work in developing non-viral approaches to T-cell immunotherapy including CAR-T and TCR. The top part of the slide shows what we believe to be the largest multi-gene program in a T-cell delivered through a single non-viral vector. The genetic software package in this case is roughly 12 KB and includes the RheoSwitch system, the expression of CAR and the control manufacture of membrane-bound cytokine IL15. As you can see here, the addition of veledimex leads to dramatic induction of IL15 expression and a complete loss of that expression when veledimex is removed, this achievement was made possible by continued development of AttSite Recombinases platform and paves the way for delivering even more powerful and flexible multi-gene systems. An important point here is that this furthers our capability and industrializing CAR-T and TCR therapies, and enables us and our partners to leapfrog competitors in this fast moving field. In the bottom half of the slide, you can see control of both CAR expression as well as membrane-bound IL15 production through RheoSwitch platform utilizing the Sleeping Beauty system. This unique capability through our gene switch enables an unrivaled control approaching CAR-T cell therapy. We intend to move this distinctive approach from bench to bedside in the near future. Another significant undertaking with breakthrough implications in the world of gene therapy is our work in cardiac disease. To date, many gene therapies directed a heart disease have had limited impact and one of the underlying themes supporting this is that cardiac disease is a complex multi-gene disorder. We have taken this challenge head on with what we believe to be the world's first multi-gene approach with our proprietary platform. This effort required a significant amount of genetic engineering and our scientists utilize multiple tools including our expanding AttSite platform to accomplish this field. We intend to move this program into the clinical setting by year-end. Next our comments on Intrexon’s ActoBiotics division and the platform we use broadly across health and agricultural applications. Here we've been able to take a microorganism that is safe for consumption by humans and genetically engineer it to produces a number of powerful biological effect is that can be administered either orally or topically. In health, oral antibiotics therapeutics has the potential to treat many different diseases. We have a number of collaborations already in place including type 1 diabetes, type II diabetes, oral mucositis, celiac disease, graft-versus-host-disease and chronic rhinosinusitis. We are very pleased with the progress we're making and we're working on exploring additional partnerships with this versatile platform. With respect to agriculture, up to 16% of global food production is lost to crop damage annually due to insects and the ongoing increase in pest resistance exacerbates this problem, creating a major need for new crop protection technologies. We’re excited to announce that during the fourth quarter that initial studies validated the efficacy of double stranded RNA expressed through the ActoBiotics platform for insect control applications. And that our collaboration with a leading global ag company has moved to the next stage of development, and we hope to have more to report on this during 2017. In our Animal Science Division, we continue to play the part of biotechnology in the world of fish farming. Unlike agriculture where biotechnology has provided significant impacts to meet the expanding challenge of feeding the worlds growing population. The first real contribution to the $150 billion aquaculture industry from advanced biotechnology is AquaBounty’s platform which Geno covered earlier. Beyond Salmon, tilapia represents one of the most significant products in aquaculture today. As detailed here, our foundational work has led to a substantial increase in tilapia [Feliz Way] at 53%, and [Feliz yield] of 27% versus conventional farmed tilapia. In addition, our Animal Science Division is building upon the expertise of Trans Ova to elucidate and improve efficiency with controlled genetics. A key technology platform we are working on is pioneering the utilization of egg precursor cells in capillary production. As seen here, our scientists were able to achieve developmental competence in bovine model as seen through the maturation of bovine egg precursor cells into structures characteristics of mature eggs. We also observe catagenesis activation demonstrating the potential for fertilization of these cells. Despite advances in genetic gain in capital through existing fertility approaches such as IVF and embryo transfer, cattle continues to lag all other high protein food sources for the feed conversion ratio of 8:1. This compares to porcine at 3:1 and chicken at 2:1. This egg PC platform therefore may substantially increase the availability of eggs from female cattle thereby increasing the power of genetic selection to meaningly improve productivity in the dairy and beef industries. So we want to several tools we are developing to transform Trans Ova into a high growth high margin business. So I'd like to finish importantly on our industrial products division, which is many of you know is working and what could be one of the world's most valuable biotechnology platforms, if we achieve our goal of creating a number of fuels and chemicals through a simple fermentation process using inexpensive natural gases feedstock. After many years of work, the team has created a genetic tool box that makes methanotroph engineering for Intrexon, similar to establish [indiscernible] platform. As shown on Slide 21, this tool box is led to rapid advances in utilizing the methanotroph to create several valuable chemicals and fuels. The yield level shown here after three of the six chemicals we have produced, namely isobutanol herbalife, 2,3-BDO and isobutanol over achieved in the second half of 2016. Currently, almost significant target with this platform in terms of potential revenue is isobutanol as a gasoline additive. From a numbers perspective every 1% of the gasoline makes equals roughly $8 billion in potential isobutanol sales. And we estimate isobutanol could represent as much as 10% to 15% of the gasoline mix, without any change to existing infrastructure including cost. From a yield perspective, we are engineering around the roadblock that we estimate puts us roughly six to nine months behind our initial schedule and we anticipate we maybe in a position to reach the site selection levels by the third quarter. With respect to isobutanol herbalife and 2,3-BDO both of these represent billion dollar plus opportunities in acrylic and synthetic rubber businesses respectively. We are very optimistic with the rapid headway we have achieved. The progress on these molecules also shows the potential for isobutanol is to share a common pathway. As disclosed on our Q3 call, we have initiated partnership discussions for one of these targets and expect to be in position to announce success on this front during 2017. With that overview of some of the transformative molecular and cellular technology within the divisions of Intrexon, let me end with one comment on the structure of the Company. This foundational work at the division level flows to the sectors of Intrexon which are centered on collaborations or direct market place to get these innovations to the commercial marketplace. Our 30 plus collaborations are scratching the surface of what is possible and we are committed to expanding the number higher in 2017 and beyond as we continue to parallel the world leading company. With that, I will finish and I’ll now turn the call over to Joel Liffmann for a brief review of financials during the fourth quarter.

Thank you, Andy. Our fourth quarter and full-year financial results reflect the progress across our Company that Geno and Andy just discussed. I'd like to briefly call out a few items. Today, we reported fourth quarter and full-year revenues of $46 million and $191 million respectively, increases of 11% and 10% over the same period last year. In 2016, we continue to add new exclusive channel collaborations and joint ventures and increase the R&D services provided to our collaborators. The full-year revenue increase was driven by a 25% increase in collaboration and licensing revenue and these revenues grew by 31% in the fourth quarter. Product revenues declined by 17% in the fourth quarter and by 12% for the full-year as our trends over subsidiary continue to feel the impact of the fresh beef and dairy commodity pricing. Service revenues which are again primarily from trends over were flat in 2016 versus 2015. Deferred revenues which will be recognized in future periods as we perform under our ECC and JV agreements were $310 million at year-end versus $198 million at the start of the year. This increase was driven primarily by the June amendment to our ZIOPHARM collaboration agreement. As you just heard from Geno and Andy, we are making substantial investments in our marketable products portfolio as well as our joint venture partnerships. In addition, we continue to invest in our technology platform as evidenced by the pending acquisition of GenVec. In our earnings release, we reported adjusted EBITDA as newly defined. For the fourth quarter and full-year, adjusted EBITDA was a loss of $5.8 million and $26.6 million compared with prior year losses of $12.9 million and $20.7 million. As a management team, we evaluate our use of capital by combining adjusted EBITDA with the change in deferred revenues. This metric for 2016 was a positive $89.9 million versus $53.4 million in 2015. I would also like to point out that we continue to execute very well on our capital efficient model. We measure our capital efficiency as the ratio of technology access fees plus cost recovery and product and service revenues divided by our cash operating costs. In 2016, we received total consideration equal to 129% of our consolidated cash operating expenses. So for the third consecutive year, we grew our business across many dimensions, we prudently managed our use of capital and continue to build what we expected to be a very substantial back end economic interest in the 30 plus collaboration bringing new products through development. We ended 2016 with a consolidated cash position of $243 million and we also hold equity securities and preferred stock in our ECC partners valued on a combined basis at approximately $153 million. Notably, we recently invested $25 million in AquaBounty and believe that AquaBounty is now well-positioned to capitalize on its own business opportunities with subsequently distributed a portion of our AquaBounty shares to Intrexon's shareholders while maintaining majority ownership success. This is our second extraordinary dividend distribution to our shareholders and reflects our commitment to creating shareholder value, while we continued development of the product that Andy and Geno just discussed. A great deal of more detail can be found in the 10-K filed today with the SEC. I’ll now turn this back over to Geno.

Thank, Joel. So in summary, we are capitalizing on our leadership position in the engineering and biology to develop high value bio-solutions. We are positioned to deliver meaningful returns to our shareholders through our scalable capital efficient model. And what we expect to be the successful execution of current and future opportunities. At this point, we will turn it over for questions.

[Operator Instructions] Our first question comes from Keith Markey at Griffin Securities.

Hi, thank you for taking my question. I was wondering if you might give us an update on the status of Intrexon crop protection and I'll have a follow-up.

Okay. On ICP we announced I don't remember when last year, but probably mid-last year that we were going to file a Form-10 and do a partial spin-off on that. The reason behind it was that we realized that we had two very, very strong and differentiated platforms really leading platforms that can address the huge market of crop protection. The first platform is the SLI technology from Oxitec and you'll note from our website we have I can't remember how many species five or six ag pest species at various stages of development one of them is now going into field trials in Australia. And the other platform by the way the reason for that side of the – that platform is so valuable is because so many insects are developing resistance to pesticides. So using the SLI technology of Oxitec will allow us to – we believe decrease the populations of these ag pest in a very environmentally safe manner part of them pesticides ever. The second platform as Andy mentioned is our ability to express double standard RNA from our ActoBiotics platform intelligence through engineer like this. So as Andy mentioned, we've demonstrated very encouraging data in the application of that technology toward some particular pest. So we combined these two platforms in an entity and big and the reason was we saw a need and we'll probably get to this later in the call it with another example. We saw a need to supply an enterprise management to this program. We were receiving in-bound inquiries about partnering individual insects and we realized that this business will actually be more efficient if they're all held together because the technology is comparable from species to species and what you'll learn and one of them certainly will enable you to move more efficiently and in another model. So we decided to do that and although we did announce we're going to file Form 10. We’ve got to work on the Form-10. The Form-10 is I guess as of today financials, now the financials are outdated. So we have to update the financials, but the Form-10 is pretty much ready to file. We're holding up on it frankly and the reason we're holding up is because this program has drawn partnering interest from multiple parties and we think it may be better for interest on shareholders to pursue this in a joint venture or some similar relationship with a major company in the worldwide crop protection, so we benefit from their infrastructure. So for now we're going to delay the filing of the Form-10. What's your second question Keith.

Yes, sure, it sounds like a very positive development and the partnering front. Thank you. And then taking a look at Slide 20, I think it’s Slide 14 where you are selling that the message that you're looking for accelerating plant regeneration that sort of thing, it looks to me like you're talking about at least in one case possibly working with herbs in the other case I can't tell what it is, but it does this involves any kind of a genetic modification of something like a plant stem cells in order to create the new plant and the improved I guess return or to capability of the plant?

Well, you see that hint in the bold type right underneath the pictures where it says pluripotent. So I don't think we're giving too much away by saying as it does involve plants stem cells. However, our scientists and IP attorneys have warned us profusely about divulging too much about this, but I'll tell you the reason it's here is because we find this incredibly exciting. So it kind of remind – this kind of reminds me of PCR of the many on the call probably know-how PCR was developed by carry most. As a research tool and I think that was the objective of our team in Davis and developing this they thought gene if we can propagate not so much more quickly I think this is like 500 times faster or something like that. Whatever is not quite 500 he told but anyway…

Order to magnitude.

And so as a research tool, it was quite compiling, but what really got us excited as a business guys that excited it, gee if you can do this, you could ask yourself do you need the plant at all. So think about the enhanced ability to rapidly create plant cell cultures both non-GMO and GMO in order to obtain what would otherwise be a botanical or still would be I guess botanical extract technically. But you wouldn’t have to grow the plant to do it. So this could be a lot more efficient. The other thing it's exciting as we can imagine, I’m sure many people on the call can imagine. We can imagine some applications of this technology and which the plant cell culture what actually be the end product. So we have a lot to evaluate here. We’re just getting our arms around this, but we were pretty stunned with the data and we all agreed that on the EMC call we had the EMC every Monday morning and thanks everyone and on the EMC call which these data were reported. We were very happy to award this the Scientific Achievement of the week award, but the reality is this would have been the Scientific Achievement of the Year award, but for a competitor that came from our lab in Germantown that I'm sure will probably drop question on.

Okay. Thank you very much.

The next question is from Tom Shrader with Stifel.

Good afternoon. Thanks for the update as always, I’ve just was wondering if I can get a little color on the isobutanol roadblock. Can you give us a sense of how you have a visibility into how long it will be or just anything you can say there because if it's really only six months away it's a big deal. I’m kind of wondering how big the error bars are if that’s fair question?

We've talked about this Tom before. The real problem when you're doing world first instance work of this complexity really relates to your ability to construct the timeline that is reliable.

Yes.

If you hire us to build your McDonald's store, right, you can exact the penalty from us for every hour that we're late because it's been done $50,000 – not a very high paying proposition, but you get the issue. So what we're finding is that with some of these really complex synthetic biology exercises for each progressive step up, we encounter two problems that man has never seen before. So it's difficult to die arise however, that’s my perspective. The perspective of the team as Andy report is that they're very, very confident. I've spoken with them. They're very, very confident of ultimate success here. The models say that they should succeed and they're very confident that the path that they're on and the problem of the work on right now is the linchpin problem.

I think that's right.

That’s right. They target it right now exactly what to end…

Yes. So for my money, I diarized on what Andy said in terms of timing.

Okay. And then it's not really a follow-up, but it's another question. In the world of fish, is the whole game here to work on species where your technology will allow land based farming, is that all you're looking at or would you look at ocean farming?

We would, I mean so Andy showed you some data on our Colombia work. That’s a very, interesting species because the volume are tilapia is enormous. The amount of protein, animal protein it supplies to a lot of the population of the earth is highly significant because it's low cost efficiently produced and these things can be grown almost anywhere. So depending on the strain of tilapia. There were highly felt tolerant tilapia. Tilapia was once actually formed in the Salton Sea in the Mohawk which as you probably know is more sailing than the ocean. The ocean sea cages are not out of the question. I can't say if we were involved anything like that Intrexon would be very careful on the environmental side because we do have environmental concerns about ocean sea cages, which is the reason we decided to spend at AquaBounty part of the productivity gain that AquAdvantage Salmon represents in terms but by spending it to acquire product features that will actually make the fish more desirable such as being antibody free, sea pathogen free, vaccine free et cetera. And still be able to deliver the product of the economy.

The predictable, sustainable, quantity of production, which the buyers are very interested in.

Year round and close to market, so those are features in our in the taste tests we've done with chefs that really rank very highly to be honest we've done this now I think of AquaBounty couple of times with some pretty famous chefs always because they don't want to be terrorized by anti-genome – they were signing contractor as we can’t release their name. But the truth is we come out on top and we mainly come out on top because the condition of the fish is so pristine and it’s so fresh. So I think that the ultimate success of the AquAdvantage Salmon is going to be very similar to that that we are already seeing for anybody who's tried an Arctic apple, which is – it's just better, consumers are going to like it better so.

Okay. Perfect. Thanks.

The next question is from Jason Butler at JMP Securities.

Hi. Thanks for taking the question. Just a follow-up on the energy division. The advancement of 2, 3-BDO seems to have been pretty rapid, can you talk about what the next steps for that program are?

Yes. As Andy mentioned I think or Geno – Andy did, so we're in partnering discussions around that one. So I don't want to mock up our partnering discussions. So I'll tell you that's the next step.

All right, great. And then for the crop protection you mentioned starting a field trial for ActoBiotics, can you talk a little bit about what that entails and how you assess success in moving forward for that program?

You mean in the crop protection area?

Correct.

Yes. So as mentioned, we have a partnership, research collaboration with one of the world's largest crop protection companies and under the terms of that agreement we're not really allowed to divulge data. But also as mentioned, we expect to have further news on this out later this year.

Okay, great. Thanks for taking the questions.

Thanks.

The next question is from Tycho Peterson of JPMorgan.

Hey, thanks. First on Oxitec now that you have approval for the pilot and Monroe, can you maybe just talk about next steps both there, and then also any update on the product in India?

Everybody is checking their notes Tycho. We actually know the answer, it's just that our government affairs people have drawn a constraint around. Geno, do you want to take?

Yes. So following the successful vote that we achieved in Monroe County, the matter is actually been handed back to the Florida Keys, the Mosquito Control board there where we received the approval for the trial. So we're really happy about what we've now seen as more widespread public support for the Oxitec solution in that area and we're working with the FDA and the board to take the next steps to initiate the trial with our technology and we'll obviously update you when that trial gets kicked off.

Okay, and then on the projects in India?

Yes. That’s done through a partnership. I had a nice meeting with them in Mumbai about three weeks ago, great people. They're making very good progress. I'm not sure what your question is about partnership.

I was just looking for an update. And then separately you talked about structural alternatives for the healthcare vertical, can you maybe just elaborate on what you mean with that?

Yes, we've been talking at board level and – thanks for the question by the way because I was hoping this would actually draw a question, even though I can’t say a great deal. But let me say that clearly healthcare. If you look at this company, okay, seemingly, if you go by SIC codes, it’s seemingly a diverse company. But in truth in terms of technology and science it's not that diverse. It’s just for people who don't realize that the analogy between man and banana is 50%, right. We could see pretty diverse, but biologically that's pretty close. I really put it this way, man and banana are more closely related probably than banking and insurance, okay if you want to use the biology to an SIC kind of comparison. So nevertheless there are – if you look at Intrexon let's say from top down, it really feels like two companies. I'm not saying it's going to become two companies, but I'll just say healthcare, therapeutics in particular is 150-year old industry, it has a certain way of thinking. It has discrete allocable capital experts, a lot of industrial conventions that are pervasive in that industry that don't necessarily apply to industries like the world's first genetically modified fish and the world's first genetically modified insects and so forth. So as we viewed this and we've been in discussion with our Board about this for a year, I think maybe a little over a year. I think we need to organize first as a matter of management and then later possibly, structurally and possible through capital which means it could be a kind of different juridical person. So we're evaluating options. Look, we've always been very transparent about this kind of stuff especially with you Tycho. So we just wanted to - we didn't want people to be surprised if we do anything here, but we've had numerous of our – with a numerous in-bound increase about our healthcare business, we've had numerous people observe that our healthcare business is probably worth more than our market cap. And when people say that, we take it seriously, it makes us think that maybe Intrexon even at this early stage in our overall trajectory may suffer somewhat from a [conglomerate] if you permit me that term. And so definitely for management purposes are going to organize our healthcare business more like a bitco and partner less. Frankly we're jealous of some of the partnerships we've done. We're jealous of what the other side has in that deal and some of the negotiations we're having now ditto in healthcare. And we've got especially with Geno here and we've got them direct with expertise to develop that an enterprise management team around health. And so we're really serving notice obviously, this is how we're thinking and enjoy the support of our board, we are discussing this with our bankers, we involved tax council. And at this point no promises, but I just want you to know how we're thinking and more to come later in this year.

Okay. Thank you.

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

Hi. Good afternoon, gentleman.

And you're right on time Derik, because you are – I think the number one analyst on this call who would endorse what I just said.

Okay. Actually as we're sitting here doing the call on Bloomberg, a headline just popped up about a potential SEC investigation. Could you shed some color on that?

Yes. As you know we've had – this subject to Seeking Alpha report and some shareholder litigation that's now been resolved. And so we think this relates to that, we’re voluntarily cooperating with the SEC, we’re very happy to do so. We’ve undergone a very thorough internal examination of all these issues and I would point you to the exact language, you should look at the total language that is in our 10-K in this subject and we're just going to have to stand by that.

Okay. Fair enough. I'll take a look at the 10-K. I haven’t had a chance to look at yet. So I guess a couple of quick follow-ups on this. Is your relationship with Dominion still progressing as planned, it's not the relations with roadblock, it’s something technical, is that the issue in the…

Yes. The roadblock is purely technical. So in our view for each of these targets off of that methanotroph bioconversion platform, it’s just about yield. So it’s about hitting the necessary yield to be in the money on that target and when you are and for the people who do know something about the energy business, the people who supply natural gas. I described them as being technophobic, but nothing against them. Every industry has its own conventions, but they are technical with their EPS sensitive and their CapEx promiscuous as compared with almost any other industry. So getting an energy company to build the plant in order to have a permanent customer for its energy output, in this case natural gas output is not a hard field to accomplish. So I'm recently back, for example from a tour around the Middle East. My observation across the Gulf States is that the way they view these things, the natural gas cost is zero, and CapEx cost is zero. So we're pretty enthusiastic about what we might be able to do with some of our targets off of this methanotroph bioconversion platform. And I think that's generally true around the world frankly. Again, it's not like pharma, right, we’re trying to find some big company that partnered with is a difficult proposition or dicey for. It's virtually guaranteed. In our view, you hit the numbers and you have no shortage of takers and there isn't anything else really that matters. Our process is so CapEx light compared with any other way of achieving these targets and OpEx light compared with any other way. And we think for any planning value that could reasonably be used. Natural gas is going to be cheapest source of industrial available carbon for the next 50 to 100 years and that's largely true in any gas producing territory. So we're really enthusiastic of this platform and we think it's going to become an important part of our value subscription.

If you allow me to squeeze one more and I mean you’ve noticed in the press release about the difficulties in the regulatory environment, obviously we have a newest administration in Washington, who has some different opinions about regulatory advantages or the regulatory environment. I guess is the change in Washington you can potentially delay things out further and terms of now they've got to put new people in place and who knows what's going to happen with the Energy Department or the EPA or the FDA are those things. I guess could you sort of think about this is the regulatory of people right now that could potentially push things out?

I don't think so, I think it could be true for anybody who has like topline issue, some kind of issue that involves multiple agencies that require the political involvement, but it should be borne in mind that these agencies are in terms of the decisions that we ask for, they are – the answers are determined by the review staff. And frankly there's been something in the public domain on this, probably let’s say, look – I think everybody knows that approval of the AquAdvantage Salmon was not held up by the Center for veterinarian medicine of the United States Food and Drug Administration was held up by the White House. So unless you get into some kind of political issue and which the politicians will intervene. I'll ask the gentleman here if they've had contrary experience, but in general I think the review staffs of these agencies are really good and we've always had constructive relations of with FDA and USDA and so forth. So to a great extent, the tide was already moving our way before the administration change and I'm very happy to report. I mean the only ongoing process that we had that did involve an interagency transfer of jurisdiction of one of our projects. I don’t want to go into more detail about that. But since we were close to this and it actually is occurring at a time of administrative change. We haven't had a single road bump. The process is going on just as it was before anything probably accelerated. So again the review staffs are very cooperative even on an interagency basis and look we always say about engineered biology what could be better than investing in a facility. So we know that this is where - this is where we go otherwise we're not going to be able to feed the planet we're not going to be able to solve very many more unmet health needs. We're not going to have a better environment. So we have to engineered biology. It's not optional. And so over time as the companies like Intrexon deliver products to consumers that they appreciate they have actual tangible benefit to consumers. I think acceptance will become more rapid. Of that said we're very much in favor of science based regulation we definitely see some technology ideas out there that are floated from time-to-time by various people that we regard to be virtually irresponsible. And I don't mean your response in the sense of their response or saying it is certainly entitled to promote propose whatever they like, but what I'm referring to is some of the ideas like Gene drives for example you just won't see Intrexon get involved in anything that you can't put back in the bottle. We think we have a serious responsibility our shareholders and to society around biosafety. And so we're very happy to we do believe that engineered biology should be subject to regulation and we're very cooperative with the regulators.

Thanks.

Next question is from Ryan MacDonald of Wunderlich Securities.

Hi, guys. So starting out with Okanagan Specialty Fruits and the Arctic apple, can you provide if any feedback that you're getting early on as you're starting to test the product in the market or what kind of demand you're seeing or consumer feedback you're getting thus far?

I can do better than that. Make sure Chris has you address and we'll send you some and you tell us how you like them.

Sounds good.

No I'm serious. I'm both joking and serious at the same time. By the way since everybody see my best Squawk Box. I have the entire talent of that program eating Arctic apples on camera. So I was pretty pleased by that. The serious part is I haven't encountered anyone yet who had personal experience with this product who didn't love it and who didn't immediately grasp its consequences for the consumer. People in the industry are really warming up to it now and we think that this is really going to revolutionize the entire industry. As far as the specific market research data to which you will inquire, we're not going to publish market research data any more than Procter and Gamble mark publishes their market research data. But I can’t tell you that we are encouraged by all the data that we have to-date and as mentioned in our press release we'll be doing pretty full some market research testing mostly around trying to establish the right price point in the fall of this year.

Got it. And then just switching quickly in Oxitec and going a little bit deeper I guess into the question about the Florida trial. We know obviously the board got approved in Monroe County and it’s back with the board. Can you just talk about what progress has been made if any on selecting a new site for the trial within Monroe County and then also if – do we need to wait at least in terms of the field trial starting in until the summer time when mosquito season I guess would pick up again to see more significant results or more accurate results for any trial?

So with regard to the second question, as we've seen from our data in Caymans and elsewhere you can see proxies for success in the larval count in practically any season in which Aedes aegypti continue to proliferate, so there's that, overall if you think of our data across all the field trials over what is it 10 or 12 years of field trials now. Really best measurement point is one-year out, so you are really capturing a full-year anyway. But anyway we're very encouraged by U.S. regulatory path. We can't really discuss site selection because that's really a decision of the mosquito control board. But we are we are making very solid progress there and we're very encouraged.

The next question is from Robert Breza with Northland Securities.

Hi. Thanks for taking my questions. Maybe a follow-up to Ryan’s question regarding Oxitec. As you talked about in the prepared remarks or in the press release your capacity is going to be fully committed in 2017, how do we think about the return on investment or what would be the incremental revenue that we should think about relative to this and then maybe if you could talk [indiscernible] 2017, how do we think about additional CapEx/spending for 2018? Thanks.

Yes. So I think that the pricing – it's almost irrelevant though. I could tell you we have a certain price model out there and what we're doing today because we're doing everything. Our negotiations in certain markets are going in a different direction and we will be updating you soon as soon as we sign one of these deals that we have under discussion now on a different model. So in terms of projecting forward, I think it would be useless to look at the economics that we have in Piracicaba. They are favorable, but they're small. Okay, but it's not going to be our favorite model going forward. So I wouldn't project out from that. I'd wait until we announce some of the deals that we think we'll be able to announce later this year. With regard to the second question as Andy mentioned or Geno mentioned, we are currently sizing, meaning evaluating various sites for the construction of a very, very large egg production facility. So if you think about mosquitoes and production of mosquitoes and frankly two and a half years ago, I had no idea about how to produce a mosquito but we've all become pretty expert. So the high-tech part is producing the eggs right and then the next stage is growing out of the larva, and pupa, okay and then the next stage is releasing the mosquito. So with that Aedes aegypti mosquito as compared with safety anopheles mosquito, the whole Calder mosquitoes that is responsible for malaria, okay. We have a huge advantage that really will enable us to go worldwide as we've talked about this among ourselves as kind of a Henry Ford moment, but what if we didn't get the cost down so low that even the cheapest, even the poorest countries on the planet could afford this solution and so that's the direction of our thinking. In order to do that we think that we need to centralize the egg production and here's the advantages just as we did we inherited this advantage and that is the anopheles mosquito has egg viability for like two or three days. The Aedes aegypti mosquito has egg viability for one-year. And this coffee cup that I have in my hands would hold six, seven million mosquito egg something like that then maybe a little more. It's a big coffee cup maybe 10 million. So really cheap transportation it's the high-tech part we can centralize that general bostic believes we can centralize that and derive considerable efficiencies and continue to develop more efficiencies as we go and this will enable us to roll this out worldwide on a more rapid basis. So that we won't have to build a big factory every place we're doing it because as Hayden Perry has told me on occasion you could do the grow out and the release in a pup tent if you had to. So we're really encouraged by our plans in this area and we do see this as a worldwide opportunity a very significant one.

Thank you.

This concludes the question-and-answer session. Would you like to make some closing remarks.

Sure. Let me just thank you for participating in our call and thank you for your support of our Company. I want to thank – I don't think I've ever thank them before, but I want to thank our Board of Directors, which has just been credibly supportive. If you want to think about this Company, I'll just say that the – I would invite anybody to really consider who these people are report they do extraordinary work. They actually are an important part of our mission when you look at their careers and you look at the other boards they sit on and so forth you realize that these people are serving, because they believe in the future of Intrexon they believe in the objectives of the Company and I can't tell you how appreciative we all are to have their guidance and supervision. Throughout the Company, I mean I think Andy we’re up to around a thousand people now.

Midnight 100s we don’t have.

So we continue to grow organically and these teams are just doing incredible work that reason we really wanted and Andy to go through some of that with you today in celebration of their work because that's really where the rubber meets the road at Intrexon. So we have approximately 600 I think a little over 600 scientists hard at work. I've been some evening events with them I know everybody here has had the same experience, I've been some evening events with them and it'll be 8 PM and they'll say I have to go back to the lab because they've got – the people in this company are fervent. They believe in the overall mission. And so my thanks goes to them as well and then our very patient shareholders look at it hasn't been a very good year. This last year in biotech generally and/or for Intrexon in particular in terms of share price appreciation and obviously we're very aware of that. We hold the few shares in this company. We all do. And not know withstanding that though as Joel described. When Joel was talking, I was thinking 6 million negative EBITDA for the quarter 27 million for the year and you consider what Geno and Andy talked about in terms of the achievement for the year. And I'm telling you this is the year that I graded as a C, yes, I graded this year as a C, right. Because I thought 2015 was a better year, 2014 was a better year and 2017 is – we're absolutely committed 2017 is going to be a much better year. So even at a C, when you consider a company that was able to do this much on a net cash burn of $26 million or something like that, I’ll tell you I would make – I'm not giving investment advice, I’ll just say, I will make that investment every minute of every day. So that's a personal observation Mr. Don Lehr, our Chief Legal Officer and not one that comes from Intrexon. But anyway, so we're very pleased with the progress we're making. This is a long road, we'll have some really outstanding years and I guess based on last year, well I’ve to say we’ll have some disappointing years from time-to-time, but what were the real disappointments to us this year other than being publicly and viciously attacked. Well, I think we had three programs with the delays on them. And so when we tell you the CD33, CAR-T we thought that was going to be in the clinic in 4Q and now it looks like we're going to file IND in 1Q, so that’s left. Isobutanol target, obviously we're behind on that as Andy said. What was it, six months?

Six to nine.

Six to nine months. The third one is wet AMD, so we got some experimental results on wet AMD that told us that we should not progress with an IND on that variant, so we've gone back to the bench and we're retooling that. I recently met with the Founder and CEO of Sun Pharmaceutical Industries, our partner in [celiac] disease and I can tell you that both sides are thoroughly committed to success in this area. We believe it's there as I mentioned in response to a question from someone today. These are iterative. It was Tom. The work of this type is iterative. You have to experimentally iterate. It's not always going to work perfectly in the first time, so you have to go back at it and back at it. Several of the examples you saw today frankly did represent the success on some experiment like Florian is a perfect example. We’ve been trying to get plants that we could – which we could control flowering for five years or six years and this was not the first effort. The pictures that you saw earlier that did not come from the first effort. So anyway just a great scientific team and my thanks to them, and again my thanks to our very patience shareholders, you can be sure we're committed to make this really pay for you.

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