Precigen, Inc. (PGEN) Q1 2017 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Intrexon First Quarter 2017 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. 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 Chris Basta, Vice President of Investor Relations. 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 2017 earnings conference call. Joining me on the call today are Mr. Randal Kirk, Chairman and Chief Executive Officer; Dr. Andrew Last, Chief Operating Officer; Mr. Robert Walsh, Senior Vice President, Energy Sector; and Mr. Joel Liffmann, Senior Vice President, Finance. Slides that will be presented on the call today can be viewed on the Investors section of our Web site, dna.com, by clicking on the link for Intrexon Corporation first quarter 2017 financial results conference call. During this conference call, we’ll 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 Web site 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. Reconciliations to GAAP measures are contained in the earnings press release as well as on the Investors section on our Web site. Now, I would like to turn the call over to Andy Last, Intrexon’s Chief Operating Officer. Andy, the floor is yours.

Thank you, Chris, and good afternoon everybody and thank you for joining our first quarter 2017 earnings call. We appreciate your support and interest in Intrexon. Earlier today, we issued our earnings press release and filed our Form 10-Q with the SEC. And we hope you’ve had the chance to review the reported financial results. During the first quarter, our dedicated team continued to make solid advancements across our 30 plus collaborations and achieved significant progress with several of Intrexon’s platform technologies and programs, which we’ll discuss in more detail today. Our business focus remains steadfast on engineering biology to bring superior and environmentally responsible solutions to the commercial marketplace across five verticals; health, energy, food, consumer and the environment. The construction of biofactories genetically designed by Intrexon to achieve this continues to increase. One such biofactory that has the potential to drive meaningful change in the energy landscape is taking plentiful inexpensive natural gas feedstock and creating valuable chemicals and fuels in a more sustainable and efficient manner. You will hear more about that shortly from Bob Walsh who leads both our energy sector and our industrial products division where this exciting work is being done. He will provide an important update on our methanotroph bioconversion platform that represents a new paradigm in gas to liquids technology. However, before that, I will provide some highlights on our marketable product portfolio and the health sector. On Slide 5, you see several of our biologically engineered products that have received various regulatory clearances, including the Arctic apple, the Friendly Aedes mosquito and the AquAdvantage Salmon. We believe that each of these individual products represents substantial revenue opportunities for the company. And as individual technology platforms, they represent the beginning of what is possible through engineering biology in the much larger commercial markets of agriculture, insect control and aquaculture. So starting with our non-browning fruit platform currently centered on apples. Okanagan Specialty Fruits are approaching the commercial launch of non-browning fresh sliced apples later this year. In the world of healthy and convenient snacks, we see Arctic apples attaining a leading market position. Convenience for the consumer is a major driver of value in the growing healthy snack market. There are many examples of convenience driving consumer demand including the baby fresh-cut carrot which not only reduced wasted carrots but also substantially increased total carrot consumption. With the Arctic apple, we have a non-browning product and brings benefits to consumers, retailers and producers alike. In our view, the multiple benefits of this unique product will accelerate adoption of fresh-cut sliced apples, increase apple consumption, make a substantial difference in the roughly 40% of apples wasted each year and enable entirely new apple-based products to come to market. In the U.S., sales of sliced apples are estimated near $500 million annually even though they are treated with chemical preservatives that inhibit browning, but they also change the texture and taste which we believe has constrained category growth. The Arctic solution resolves these issues and does not change the apple’s texture or taste. And importantly, from a business perspective, we expect the Arctic apple will have a meaningful margin advantage because it eliminates the cost for chemical preservatives. Having completed the planting of 70,000 trees in 2016, we expect to plant over 250,000 trees this year and over 0.5 million in 2018. By the end of year 2020, we are planning to have planted close to 4 million Arctic apple trees. We are looking forward to the initial product launch later this year. Packages will hit the shelves in a limited number of retailers and we expect to see strong consumer interest. We believe the Arctic apple business can eventually reach $1 billion per year with attractive margins and return on investment. For our non-browning platform, apples are just the beginning. We are actively working on additional fruits, including cherries, pears and avocados. Intrexon has also begun development on its first vegetable, lettuce. Our Oxitec subsidiary continues to gain momentum in 2017. The significantly superior control of the dangerous Aedes aegypti mosquito has attracted the attention of new countries and geographies. Since the start of the year, we have commenced a regulatory trial in India and announced a MOU to bring our solution to Colombia. Additionally, we announced suppression results from CECAP, Piracicaba as shown on Slide 9 that illustrates the strength of Oxitec’s solutions. For the second consecutive year, we maintained the excellent level of over 80% suppression of Aedes aegypti in the treated areas versus standard approaches including pesticides in the control area. We achieved this sustained control in the second year with 60% less mosquitoes, thus demonstrating durability and a cost benefit. Moreover in this area where Oxitec solution is being deployed the longest, public support for our genetically engineered solutions is exceptionally favorable. The CW7 Market Research Institute survey shows 93% of citizens in Piracicaba support its use. We expect to add additional geographies and countries in 2017, including a regulatory trial in the U.S. upon receipt of final clearance from the FDA. Oxitec is investing in personnel as well as additional production capacity in order to meet anticipated demand in both existing and new geographic regions. Finally, under our marketable products is the AquAdvantage Salmon. We believe that sustainably farmed fish that can be produced in half the time from one quarter less feed and do not require vaccines or antibiotics, like other farm fish, are positioned well for success. AquAdvantage Salmon is the only approved fish that delivers these advantages. During the first quarter, AquaBounty listed on the NASDAQ stock exchange broadening exposure to the U.S. markets. In the 150 billion aquaculture industry, this faster, better land-based farming solution is initially targeting the $2 billion Atlantic salmon product category in the U.S. We are also working on other high-value targets with AquaBounty, including tilapia, in which we have achieved a 50% increase in fillet yield. We look forward to seeing continued progress at AquaBounty through the remainder of 2017, including movement on their plans to increase production capacity. Moving onto our development portfolio launches, we will focus the remainder of our update today on our health and energy sectors before turning the call over to Joe for financial comments. With respect to our health sector, during the first quarter we announced the formation of Precigen, a wholly owned subsidiary to consolidate all of our health-related assets. The formation of a dedicated health company focused on gene and cell therapy is a significant step to increase the focus and inherent value in our platform technologies and programs, which are advancing in clinical development. We are actively evaluating a number of strategic and structural alternatives to maximize shareholder value. Additionally, we’ve been fortunate to attract several highly qualified candidates to lead Precigen and expect to provide an update in the near future. The clinical development outlook for 2017 is detailed on Slide 14. We continue to believe this will be a breakout year for our health sector given the number of programs entering the clinic in 2017 with additional programs from our broad pipeline following the same path in 2018 and beyond. As shown in these tables, we have four active clinical trials utilizing our gene and cell therapy platforms today and expect that number could increase to as many as 14 by year end. In the oncology space, we recently provided an update on the development of the next-generation CAR-T therapy in our strategic collaboration with the biopharmaceutical division of Merck KGaA and ZIOPHARM Oncology. As detailed, the therapeutic candidates for the two CAR-T targets selected by Merck in mid-2015 will utilize the non-viral Sleeping Beauty system to generate CARs the co-express membrane-bound IL-15 under the control of our RheoSwitch platform to regulate in vivo expression. Additionally, it was disclosed the two CAR targets are expressed on a wide range of tumor types, which has collative implications for potential commercial milestones and royalties. We anticipate entering the clinic in 2018 with this controlled CAT-T approach. During the first quarter, Intrexon and ZIOPHARM also announced a CRADA with the NCI and Dr. Steven Rosenberg, a pioneer in immunotherapy. The CRADA is for the use of Sleeping Beauty to genetically modify autologous PBLs to express TCRs targeting new antigens for patients with advanced cancers. This taps into Sleeping Beauty’s potential to target unique new antigens found in solid tumors, thereby enabling personalized immunotherapy for cancer patients. Additionally, ZIOPHARM has been working to reduce the time and high cost associated with manufacturing and delivery of CAR-T cells with the goal of making them a bedside or point of care option for cancer patients. ZIOPHARM’s Q1 conference call last week covered this potentially game-changing approach. We are enthusiastic about their plans to bring this platform to the clinic and expect to hear more as the year progresses. Slide 19 provides a brief overview of the four active clinical trials utilizing our technologies. During the first quarter, ZIOPHARM reported a successful end of Phase 2 meeting with the FDA for the IL-12 RheoSwitch program for recurrent glioblastoma. They will be progressing to a Phase 3 trial this year and there will be an update on this program at ASCO next month. ZIOPHARM also improved production times in its ongoing Phase 1 trial of second-generation Sleeping Beauty CD19 CAR-T cells lymphoid malignancies with T-cells manufactured in as little as two weeks. Subsequent to the quarter, ZIOPHARM announced FDA acceptance of the IND application for a Phase 1 trial for CD33 CAR-T therapy that incorporates the kill switch for relapsed or refractory AML. These unmet needs are amongst the most challenging scenarios in the management of AML. The first patient is expected to begin treatment in the third quarter. In rare diseases, Collaborator Fibrocell Science received fast track designation for its orphan drug FCX-007 to treat a devastating skin blistering disorder known as RDEB. The first patient in the trial was dosed in February and earlier this week Fibrocell reported the Data Safety Monitoring Board has recommended the continuation of the trial. Data from multiple patients are expected in the third quarter. In cardiac disease, our majority owned subsidiary Xogenex is developing a groundbreaking three-gene therapy approach to heat failure. We also believe cardiac disease is caused by multiple genes that we are targeting simultaneously with this pioneering approach. Echocardiographic measurements in preclinical animal studies have demonstrated reversal of established ADM cardiomyopathy or congestive heart failure after a single treatment. Nuclear localization of the PHH3 mitotic marker has also confirmed cardiomyocyte regeneration. We intend to file an IND on this groundbreaking program by year end. In addition to maintaining forward progress in all our health programs, we are also continuously strengthening our technology capabilities for our current and prospective partners. To that end, in the first quarter, Intrexon entered into an agreement to acquire GenVec to develop a viral platform with significantly higher payload capacity of over 30 kilobytes or 3x greater than current viral delivery systems. We expect to close on this transaction following approval by GenVec’s stockholders. At this point, I’d like to turn the call over to Bob Walsh, Senior Vice President and Head of Intrexon’s Energy Sector.

Thanks, Andy. It’s a pleasure to be on the call today. As head of the energy sector, the majority of my time is spent managing the extremely talented team of over 140 employees in the industrial products division. This is where we execute Intrexon's pioneering work to crack the genetic code of what we believe can be the most valuable industrial fermentation platform, a methanotroph bioconversion platform or MBP. Intrexon's disruptive MBP technology is designed to enable a highly profitable use of low-cost natural gas to replace oil as the feedstock for the manufacturer of high-value industrial products. I would like to point out just how plentiful natural gas is. North America has over 300 trillion cubic feet, which equates to over 100 years of proved reserves. Other parts of the world have equally ample supplies. Developing an engineered biology solution that is environmentally friendly and also economical to capitalize on this plentiful supply will be a game-changer in the gas-to-liquids industry and we believe Intrexon has done just that. At the center of our proprietary gas-to-liquids conversion platform is the methanotroph bacteria. This unique organism consumes inexpensive methane as its energy source and since 2013 Intrexon has harnessed this capability through bioengineering to produce a number of valuable fuels and chemicals. Slide 25 shows the valuable molecules we have achieved to-date with our MBP platform technology. Isobutanol; Farnesene; 1,4 butanediol; Isoprene; isobutyraldehyde; and 2,3 butanediol. All six molecules have been attained via single step fermentation utilizing all heterologous pathways and to the best of our knowledge all six represent world first. The total addressable market opportunity for the molecules the products achieved to-date is very significant. In the four molecules actively underdevelopment represented total addressable market exceeding $100 billion per year. Today, we are excited to report that for two of these products, isobutyraldehyde and 2,3 butanediol, we’ve obtained the yields necessarily for the site selection of initial production facilities. Additionally, we’ve had a greater than 30% increase in 2,3 butanediol yields during the first quarter of 2017, which places this valuable chemical commodity in the money based on current natural gas prices. While we are highly encouraged by this progress, we remain vigilant in anticipating and mitigating risks associated with these programs. These include potential scientific risks and possible scale-up risks which could create delays that push out our timelines and could alter our economic model on these projects. With that said, this rapid achievement in 2,3 butanediol and its implications has led Intrexon to retain Moelis & Company to advise us on strategic and financial options with respect to our platform and/or specific products on it. From a commercial perspective, the successful progress in 2,3 butanediol is noteworthy. These molecules converted easily to 1,3 butadiene. Butadiene is utilized in the synthetic rubber industry as well as other areas with annual worldwide sales estimated near 22 billion. To put the value of our platform into further perspective, butadiene sells for between $2,000 and $3,000 a ton whereas our projected COGS are sub-$1,000 per ton. Generally continued success like butyraldehyde opens another significant near-term opportunity as it is the main precursor to methyl methacrylate or commonly called MMA. MMA is used in the growth industry with the largest applications being automotive parts and lighting for LED and flat panels. MMA represents a $7 billion market opportunity with prices ranging from $1,600 to $2,200 per metric ton. Our projected COGS for this valuable product are also sub-$1,000 a ton. From an operational perspective, we have begun site selection activities in both North America and other low-cost natural gas owned worldwide. The next step and scale-up will be to produce 2,3 butanediol and apply it pilot efficiently this summer for engineering data and final product quality testing. This effort puts us on track to secure a site by year end and kickoff detailed designs for small-scale facilities that could break ground in 2018. Intrexon has formed two partnerships with financial investors; Intrexon Energy Partners focused on fuels and lubricants, including Isobutanol, and IEP II or Intrexon Energy Partners II focused on 1,4 butanediol. With respect to Isobutanol as noted on our last conference call, we continue to work around a technical hurdle on the program and expect to provide an update on our progress later this year. With respect to 1,4 butanediol, it remains on track. The remaining products as previously disclosed, we have initiated partnership discussions for at least one of these targets and we’ll announce further development as appropriate. Now, I will turn the call over to Joel Liffmann to discuss financials.

Thank you, Bob. Today, we reported first quarter revenues of $53.7 million, an increase of 24% over the same period last year. Collaboration and licensing revenues with 62% of our total revenue and increased by $9 million or 37% year-over-year. Product and service revenues increased by approximately 5% as our Trans Ova subsidiary saw an uptick in demand for certain services along with signs of stabilization in the cattle industry. As a reminder, Trans Ova provides industry-leading reproductive technologies to cattle breeders and we continue to invest in new technologies to capture additional revenues in this business. Deferred revenues which will be recognized in future periods as we perform under our ECC and joint venture agreements were $297 million at March 31. Our first quarter SG&A expense was $35.1 million, a decrease of $7.7 million from a year ago. The decrease was driven by a reversal of previously recognized stock-based compensation expense and litigation expense that was recorded in the year-ago period. We are also continuing to invest in our platform technologies and research and development expense in the first quarter increased by 32% to $34.2 million. First quarter adjusted EBITDA was a loss of $7.1 million compared with the prior year loss of $11.7 million. We once again hit our cost recovery target and had cash receipts from research and development services that were over 50% of our cash operating costs, when excluding operating expenses of consolidated subsidiaries. Total consideration received from all operating sources were 64% of consolidated cash operating expenses. At the end of the first quarter, we had consolidated cash and liquid investments of $205 million and we also held equity securities and preferred stock in our ECC partners valued at approximately $156 million. More detail regarding our results can be found in the 10-Q filed with the SEC earlier today. I’ll now turn the call to RJ Kirk for some comments.

First, let me say that everybody around this table is pretty happy today. The results that Bob Walsh disclosed a few minutes ago represent the achievement of what I personally believe is probably the most valuable biotechnology in history. You heard Bob mention that we’ve hired an eminent banker to assist us, so let me say why we’ve done that. When I reported these data that we’re actually – the hard data that Bob didn’t fully disclose that, to our Board, I told them that it’s time for us to be very, very smart and the first smart idea I’ve had is to realize that we’re not smart enough to deal adequately with an opportunity of this magnitude. So we’re pretty excited and we’re going to get smart fast. Bob and I were in Texas yesterday and I’ve spent three weeks in the Gulf so far this year. We’ll be coming up to speed pretty quickly and we’ve got very, very help. But first, I just want to congratulate Bob and his team in the industrial products division for this stunning achievement. We can go to Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question will come from Jason Butler with JMP Securities. Please go ahead.

Hi. Thanks for taking the question and congratulations on all the progress in the quarter. First question from me, can you just talk about this Xogenex program a little bit and if you can give us any color on the delivery technology or delivery approach you’re using there for three-gene therapy? Thank you.

Thanks, Jason. So I don’t know if we’ve disclosed the delivery vector but let me mention – you asked for color first, so let me provide some. And this has been explained to me by people who actually know a great deal more about this than I do, so I’m relying on experts here, but let me say – and I have looked at some of these papers. But if you look at the 25-year history of gene therapy in the heart, what you find consistently is that these therapies have been operative on three different axes. But like all – I think really all of the gene therapy companies with little AABs and a CMV promoter and a single protein, it’s a single gene. In order to really move the dial to really restore heart function, improve ejection fraction in a meaningful way, you really have to be operative on all three axes. So the 25-year history, as I said, have – what they’ve basically shown is very weak efficacy. Safety is good but very weak efficacy. It’s not really moving the dial. So the data that Andy reported here today, these were pig data I think as well, were really quite remarkable because we are well assisted in this area by people who have really been involved in cardiac gene therapy throughout the 20-some-years that it’s been done. And so these preclinical data are highly significant and extremely promising, so we’re very excited about this program. And as Andy mentioned, we expect to file our IND by year end.

Okay, great. Thanks. And my follow up is just on the GenVec acquisition. Can you talk a little bit about what attracted you to their technology and where you think you can leverage it with your other technologies?

Yes, a few things should be pretty obvious. They’ve got a great library of adenoviruses that we want to go to work on to improve further. And the second thing is they’ve got a great team; really terrific scientific team and we are looking forward to their joining our team. So the motivation is quite obvious. I think on the last quarterly call, we showed our latest technology which is proprietary to Intrexon and which we moved over very large complex gene programs into human primary T-cells and make them work according to design. So this was RTS membrane IL-15 CAR. I don’t think we specified the CAR nor should we here I guess. They’re shaking their heads now. And I think those vectors were over 12 KB in size. That simply can’t be done by anyone else on the planet. That was done – I’m still talking about the last quarter’s call. That was done with something like 95% transduction efficiency and 100% fidelity. So we feel that that plus Sleeping Beauty we’re very, very well served if the cell is outside the body. But once you go in vivo, now – okay, so a minute ago I was probably slamming these little AAB companies and I can do the same with the lentiviral companies as well, because what we really want to do is get to multigenic gene programs that have switches and an ability to control, really providing just what we’ve always – conditional and spatial and temporal control over whatever program you install. Virus is probably a pretty good way to go in vivo but the existing industrial orifice [ph] being AVM lenti are extremely limited bandwidth. Their transduction efficiency is inadequate for our purposes. So we were really attracted by the opportunity to work on this library and we think this gives us a wonderful complement to our capabilities in human health.

Great. Thank you.

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

Hi, guys. It’s Mike Ryskin on for Derik actually. Congrats on the quarter. Just a couple quick questions for you. First off, on the Oxitec subsidiary, you talked about some progress o-U.S. and you showcased the new data out of Brazil with the second round. Any update on the field trough in the U.S. and what you’re looking at there, whether it’s in Florida or potentially, like you said, expanding to other counties also in the U.S., anything in the queue for 2017 there?

There’s plenty in the queue, Derik, but let me say it would be inappropriate for us to comment on this at the present time. But let me mention that our call is being hosted today in our nation’s capital that we are engaged on a more or less constant basis upon these issues. We think fundamentally this technology and here I mean Oxitec technology itself [Multiple Speakers] we think is extremely compelling. The 513A mosquito to us still represents the most field proven, economic, effective, environmentally safe solution to all the problems surrounding these arboviruses, Zika, dengue, chikungunya, yellow fever and so forth. We feel very confident, more confident than we ever have about this asset. So we’re continuing to marshal it through. You saw in this quarter we have deployment now coming up in Colombia. We’re continuing to rollout in Cayman, in Brazil. We didn’t mention it in the press release because we have already said previously but we’re continuing to expand our production in Brazil and our use in that country. And that’s still very much on track to exhaust our manufacturing capacity in Brazil by year end. So we’ll be expanding that, as Andy mentioned during his remarks.

And the regulatory trial in the U.S. is pending FDA approval, which we hope to do this year.

Got it, thanks, appreciate the color. And then a quick follow up. You mentioned in the prepared remarks the R&D jump in 1Q to support ongoing activities. I’m wondering if you could provide some color in terms of where in the portfolio that was, if there was a particular segment or industry where the R&D spending increase came from?

Even without our CFO sitting here or even might even having to look at Joel Liffmann to my left, I know that the answer to that is no we can’t provide that color.

Got it. All right.

Let me explain why. Once we start to do that, okay, then others want us to segment therefore ever thereafter and it will just be a lot more work for our accountants to do. But I will tell you this. Given what we reported to you, you should be able to figure it out.

Got it. All right. Thank you.

The next question comes from Thomas Shrader with Stifel. Please go ahead.

Hi. This is Alex Schwartz on for Tom.

Hi, Alex.

I have a few questions with energy, maybe they’re best for you Mr. Kirk or Mr. Walsh. First off, congrats on achieving site selection for isbobutyraldehyde and 2,3 BDO, great progress. So you’ve talked about the business model and commercialization process of the isobutanol plans, what it’ll look like. Just in terms of placement in your [ph] gas resources employing contracts. With these two molecules, what will the commercialization process and business model look like? Will it be in a similar format or kind of how should we think about it going forward?

It really could vary. So you’re right to remember and I congratulate you for remembering our talking about toll [ph] processing with regard to isobutanol, for example. And that was a business model – I still think if we were only successful on that one molecule that would actually be probably the right one. But now that Bob’s team has taken us into such a high yielding territory on 2,3 BDO and on the precursor to MMA, we’re going to take a moment to talk with people in the industry and take the advice of Moelis & Company. We’ve really enjoyed our engagement with them and they’re absolutely first rate, because it could change. And so what I’m telling you is toll processing probably makes sense for isobutanol if that’s all you have. But now clearly the success is that Bob and his team have generated on these two molecules greatly in our view increased the probability of success on all of them. So if you think about it – I’ve only gone to school on this in the last few months, so I won’t hold it against anybody on the call for [indiscernible] Bob actually is an expert. But as usual, I think I can speak in country law from country law your perspective on this thing. This is the biggest thing. If this thing proves out the way that it looks like it is and actually has been already done on two molecules, this greatly improves our probability success on anything that our biogenetic model will inform that we should be able to engineer this organism too. And given the toolsets that Bob and his team have created, they’re really able to move fast now. So this is a platform and we should talk to the world about this. Because as the platform that is applicable to natural gas, historically if this thing is what we think it is and earnestly think it is, this is the most significant technology to ever be brought to bear on natural gas in terms of its upgrading. It’s much more significant than Fischer-Tropsch which is from 1922 and how many Fischer-Tropsch plants?

Less than 10.

Less than 10 in the world and you built the largest [indiscernible]. So in a world that has found over the last few years as much natural gas as has been found, given the amount of stranded gas, the amount of natural gas that is not on our pipeline and even gas that is on our pipelines, just the sheer quantity, as Bob mentioned, in the United States and elsewhere is so vast. And this was the basis, if you remember, and this was in our S-1. We chose this platform because we reckoned that natural gas should represent the lowest cost input feedstock, as Bob would call it, the lowest cost – if you think about it, you just count the carbon atoms. It’s the lowest cost source of carbon that is industrially available on this planet and you can pretty much bet on that as a planning value going out another 50 to 100 years with a very high degree of confidence. So this is very big and so don’t hold us to anything we’ve said previously about our business model is what I’m saying.

Understood. Well, I look forward to future updates on those two molecules. But if I can ask a follow up on the energy platform. With isobutanol, you mentioned you’re working around a technical issue and will update us later this year. I’m just trying to think, if the update later this year is site selection, kind of what does that mean, what goals have you hit? Does that mean you see a pathway to profitability or you’ve hit it? I’m just wondering what isobutanol site selection could mean?

Let me just clarify something we’ve already said and then I’ll ask Bob to comment. The site selection stage to which we alluded pertains to 2,3 BDO which is one catalytic step from 1,3 butanediol and pertains to the precursor MMA as well and through the same kind of means, not isobutanol or 1,4 BDO. We’re not yet two site selection stage on isobutanol, so the technical issue to which Bob alluded on isobutanol is one that is in our lab.

Yes, and to build on that a little bit, it’s something you know how to solve in other organisms and as you know, this is a new-to-industry organisms, so it’s not surprising you have a few technical hurdles to overcome. But once we overcome that, this will – when we overcome this, we potentially will be at the same level of site selection. So building on that standpoint, Alex, that would be the next step as we go through that hurdle to improve this.

Okay. Congrats on the progress, guys. Good luck.

Thanks.

The next question will be from Robert Breza with Northland Capital Markets. Please go ahead.

Hi. Good afternoon, everybody. Thanks for taking my questions. Maybe one question for Joe and then maybe one for Bob. As you think about the commercial launch later this year for the apple, when you think about that from a model perspective, I know you said 4 million by the end of 2020 in terms of trees. But how should we think about that hitting the P&L from a revenue perspective? And maybe a similar question just for modeling purposes. As you think about the 2,3 BDO site selection, obviously it takes time to build the facility, et cetera, and move forward. So is that more like a 2019, 2020 revenue driver or how do we think about the site selection for 2,3 BDO and how do we think about the apple launch later this year? Thank you.

This is Andy. On the apple, as you could probably well appreciate, there’s a cycle of plants and the maturation of the trees to generate material yields to put into slice products. So the early plantings will start to yield usable crop this year. And so the actual revenue generated in the first commercial launch is I’d say largely not significant overall. The way to think about this is that we are sequentially increasing the plantings and those plantings will sequentially increase their yield. The lifetime of an apple tree is – productivity is 25, 30 years. They really start to produce their material level after – it’s like five years after you first kind of ordered the tree, 45 years. So you start to get an exponential growth a few years after you’ve gone to market and that continues for quite some time. So without getting into very specific details, that’s the way to think about it.

Okay.

And on the 2,3 BDO raising around [ph] in revenue, we feel – as we said we had the potential to break ground in 2018. The facilities we’re building are similar to ethanol plants. So if you’ve looked at corn ethanol, it’s roughly 18 months’ construction cycle and then you have a startup cycle after that. And so that’s kind of the timing on those plants from a revenue perspective.

And I would just add what you’ll see from a modeling point of view of course is the expense now and the revenues beginning to build later. So you’re already seeing that in our financial reports pertaining to the apple.

Great. Thank you, gentlemen.

Our next question comes from Tycho Peterson with JPMorgan. Please go ahead.

Hi, guys. This is Tejas on for Tycho. One quick question here on Precigen. Can you give us an update, RJ, on your CEO search there? And has the announcement had any impact on the tenor of your conversations with new healthcare customers or perhaps employee departures or things like that?

Departures? No. But an interesting question, Tejas. It definitely has I think improved our ability to recruit, because we plan on Precigen holding our products longer, developing them and possibly bringing them all the way to market. It has been just a little frustrating for our team to view the vastness of our health sector portfolio in relation to companies that are in therapeutics and look at the breadth and depth of our technology. The fact that we’re the only company that has ever shown the ability to induce and regulate plus and minus a protein being expressed in man from a gene program, we’re the only company so far as we know to ever show that we can induce and regulate multiple genes from one switch. We have I think many claims to – I mentioned a few moments ago, our pseudoascites technology allows us to [indiscernible] gene programs into place with absolute fidelity and 95% transaction efficiency. And so when I compare these capabilities and then I look at our product portfolio, which ranges from eye disease to rare disease and certainly everything we have going on in cancer at ZIOPHARM we think is really going to win out. It has been a little frustrating for us to realize that that portion of our business is really not getting the respect or evaluation that it deserves. And furthermore to your point about recruitment although you stated in inverse terms which always makes me think you’re sort of the leader of a shorts. But I think there’s no question that our announcement around Precigen has enabled us to attract a higher caliber of potential leadership for enterprise. And as Andy mentioned, we’ll be announcing something we believe in the near future around that. But thanks for your question.

And if I can ask a quick follow up. In terms of Arctic apple, I know you said the production cost advantage is about 40%. Is that comparable to what you expect on other fruits and lettuce as well? And can you share any insights on sort of a pricing paradigm for these products relative to those – just the regular kind of like status quo?

It’s a great question. So first, let me mention that anybody who has thought about it from that perspective alone would really be missing the point. The main point of the Arctic apple is this apple has a feature that we believe consumers want. We don’t know yet how we’ll be pricing the product, so it’s not possible for us to tell you what in this particular field of agriculture, it’s called the trade premium. But there’s no doubt in any of our minds that this product will command a significant trade premium. So I can’t really talk to you about what the exact margins will be until we know what that is. But we do know that with the broad consumer testing that we’ll be doing based on the fall harvest this year, we’ll be in a very position to know what that trade value will be. I can tell you we’ve modeled on a very conservative basis. My personal view is that the actual trade premium is more valuable than the basis upon which we’ve modeled. And yet on this very conservative modeling, we have and our Board has approved the most ambitious, aggressive apple growing campaign in the history of the world. So we’re very confident of a success here. The number to which you alluded is simply the amount of waste that occurs in the apple industry. And obviously as we move to making – as we provide technology and we have the technology and it’s a proved technology that makes apples a bit more in the way that consumers really like them and think about – how many foods do we buy that we hold in our hand. It’s like 25 times mouthful, right, and we have to hold it in our hand and jam it into our mouth. When you think of it from that perspective, you think about how demanding consumers are today. It is very easy to understand why the apple industry has been in decline for 17 years. And despite the fact than an apple is a wonderful item when freshly harvest and when sliced. So our technology, as Andy mentioned, we think is genuinely enabling to the category. We think it will be $1 billion business. But also as Andy just mentioned in response to another question, this is going to take a few years to happen. We’re very confident in it. It’s going to grow geometrically. That’s the good news. But it just takes a few years to grow some apples. It’s a two-edge sword. As I view this business, this is the 100-year business and I don’t plan on living long enough to see the backend of it. But I will say as an investor and as someone involved in helping to build this company, I love having 100-year products and that’s what I think we’re talking about here.

Thanks so much.

The next question will come from Keith Markey with Griffin Securities. Please go ahead.

Hi. Thank you for taking my question. I was just wondering if you might comment on the selection of patients that Kite used in their recent trial that resulted in at least one death, and how you might see that playing out for ZIOPHARM in future clinical trials?

So we’re certainly not going to comment on the clinical trial results of any competitor. I can say I know Arie Belldegrun and I like him. But we have made no secret of the fact that we are on a completely different track. So everything that you saw Dr. Cooper present – not everything because he showed you specificity and he showed you data, so I won’t say everything. But I’ll say what he showed you last week is in line with what we said in our S-1 once again. It’s just amazing how he plans that. We have to repeat to public shareholders and analysts what we’ve disclosed in our S-1. Anyway, we said in our S-1 that we think that cell-based therapies and in particular cell-based cancer therapies are going to be eclipsing in the future but only if certain technical issues can be overcome. We identified what those technical issues were and frankly still are. It has been amazing to us to see paper after paper and report after report come out that is confirming everything we’ve said in 2013. I’m not saying we were [indiscernible] because really the data was there in 2013. So these are very manual, non-scalable, highly variable virally transduced autologous CAR-T approaches. Then you have to then expand the culture. Every virologist of my acquaint who’s ever expanded a cell culture has informed me that it’s always highly variable. I don’t know how this ever becomes GMP. But be that as it may and maybe it is GMP for all I know. I’m just saying the results are going to be variable and the data is certainly showing that it is variable. Third, it’s very expensive. It’s orders of magnitude more expensive than it should be in order for this ever to be a first-line therapy. And fourth, to be a first-line therapy, a couple of other issues need to be solved as well. One is, you can be expanding to an enormous cell population ex-vivo and then hitting with these patients with these vast quantities of cells. If you do, you will get cytokine release syndrome. The method of dealing by the players who were supposedly the leaders in this industry, the method of dealing with cytokine release syndrome is patient management. They’ll produce the cytokine release syndrome and then rely on the stats of these few thousand hospitals that can actually manage these cases to manage the side effects. We don’t think that the cytokine release syndrome is necessary. We think that we can expand the cell population in vivo rather than ex-vivo, so you can start off quite modestly. We think that as Dr. Cooper has disclosed, we think we can control the cell proliferation in vivo in order to give the clinician what clinicians in oncology almost always have in other cases, which is an ability to dose to effect. To find the therapeutic window for that patient that is short of intolerability but yet well within the range of efficacy. So this is no secret, it is not new. We’ve been saying this since our S-1 in 2013 that this is what is what needs to be done. What Dr. Cooper showed last week on his call is that we in partnership with ZIOPHARM have nearly done it. What he showed was that we have a model A automobile in design, in the shop and we have tested its various components; some of them on the road, some of them on the road in combination but haven’t yet put all of them together. And by all of them clearly what I mean is a point of care RTS membrane IL-15 CAR-T. We haven’t put all of those together in a point of your setting using Sleeping Beauty or pseudoascites in order to perform the transduction. If you put all of that together, this should actually in our view solve the problems that persist in this type of therapy that are being encountered by others. And so we’re very excited about that. We’ve been very solidly on this track and we’re going to continue on this track. But we’re very, very encouraged by all of the data that we’ve seen today.

Yes, I agree. It’s really a phenomenal development of work that you and Dr. Cooper have succeeded in doing. If I could ask one little question related to that. You’ve shown already that you’re expanding capacity in the orchids that you’re planting in the preparations that are underway for site and building of a plant for the energy/chemical group and in the food area where AquaBounty is expanding capacity perhaps this year and with your – in your relationship with Darling for feed. I was wondering if you might tell us a little bit about plans for expanding or if you have any at this point, for expanding capacity for producing the Sleeping Beauty vectors or Sleeping Beauty genes that will be used for therapeutic purposes such as MT?

As I mentioned and if you go back and look at the slide in connection with our last call, Keith, we have a new technology which we refer to as pseudoascites. It’s based on our proprietary recombination that has produced stunning results we think in terms of an ability to provide 100% fidelity, 95% transduction efficiency of very, very large gene programs. So, no, we don’t have any immediate plans to work on Sleeping Beauty per se. I think once this particular tool is fully developed and we have clinical proof of its efficacy, we will transition to this platform.

Great. Thank you very much.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Randal Kirk for any closing remarks.

Thank you. I won’t be long today. I think Bob Walsh was the star of today’s show. Again, thanks to Bob and congratulations to his team. I want to mention that the work that Bob reported on, it came as the result of nearly five years of effort by some very, very brilliant and confident people. This was not rewarded – as a matter of fact, May comes a surprise that we’re actually reporting success on this call, because this is not one of the FAQs that we get in the press. We get hassled to death about all of our – many other partnerships and many other lines of work, many other projects that Intrexon has ongoing. This has always been a very significant one and yet we receive very few comments about it. So let me say this. The work is absolutely first rate and obviously we think its world changing in the energy industry. But I think the achievement is actually not only – I think the achievement is illustrative and I think that Bob’s team is illustrative of the kind of teams that we have in Intrexon. They will work patiently for years as scientists will want to do towards an object and to succeed requires a lot of determination, a lot of successful iterations. You heard Bob comment on the technical hurdle that he’s facing on – but what you couldn’t see was what we saw here which is he’s very confident on success and I know that his team is confident on success. Well, why are they? It’s not just because they think they’re so brilliant even though they happen to be brilliant, it’s because their experience has taught them that this is a solvable problem. From our perspective just looking in somewhat from the outside, what we’ve seen is that this has been the progress of this project from inception to-date. Meaning when you’re doing world first instance work, what will happen is you’ll have a big leap forward but guess what your limiter is at that point. You’ve just discovered a new problem that man has never seen before. Now you have to go to work on this problem. We have a lot of teams at Intrexon who are doing work like that. We’ve sung their praises from time to time. Some of this work is going to turn into we think very significant realizations – I think that’s in the press release – realizations in the world. I think that plants themselves grow technology that our team in Davis has created. That could really enable urban farming. If you think about that technology and what – I think we told on the last call, think about the application of that thing. One good thing we’re thinking about is why isn’t this the ultimate urban farming company, because this looks to us like the genuinely differentiating asset that can really enable that whole category. So I just want to cite that as an example. My real point is, we have dozens and dozens of these projects going on in Intrexon. There are very good people working on all of them. Everybody sitting at this table including Bob, even though he’s a chemical engineer and Andy I guess originally a scientist, so he’s the only one here with that kind of background at least. But let me tell you what our jobs are. Our jobs are to turn the work of these brilliant scientists into things that really matter in the world. And we’re very confident that Intrexon is doing that. So again, I thank everybody for their patience and support. And I think I can genuinely promise personally that the balance of 2017 is really going to be a great year.

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