Q2 2019 Earnings Call

Good afternoon, and welcome to the Intrexon Corporation second quarter, and first half 2019 financial results Conference call.

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I would now like to turn the conference over to Steven Harrison Vice President of Investor Relations. Please go ahead.

Thank you Gary.

Welcome to and trucks on second quarter 2019, Investor call on Steve Harrison, Vice President of Investor Relations and I'm joined by Thomas Bostic, Intrexons, Chief operating officer, and our CEO R.J. Kirk.

During this call we will make various forward looking statements.

Investors are cautioned that are forward looking statements are based on current expectations and are subject to risks and uncertainties.

A number of factors could cause actual results to Oh.

Differ materially from those indicated by our forward looking statements. Please read the safe Harbor statement contained in the earnings release as well as Intrexons. Most recent SEC filings for a more complete description.

On today's call, we'll provide an update on our progress including updates on clinical developments in transactions, we will conclude with a Q and a session.

I'd like to begin by providing an overview, our some of our health programs.

Next slide.

Presaging continues to advance its clinical and preclinical portfolio in oncology autoimmune disorders and infectious diseases.

Most notably we now have patients in the clinic using our ultra car T therapeutic platform.

Which our first in class investigational cell pair therapies.

That can be rapidly administered following non viral gene transfer.

In June we announced that PR Gn, three 006 began dosing in the phase one one be study for patients with ammo in higher risk Mds.

And this week, we announced dosing in the phase one study of PR GE and three 005 for patients with advanced recurrent platinum resistant ovarian.

Fallopian tube or primary paired to neo cancer.

With dosing underway and two trials using our ultra car T. Therapeutic platform. We believe we are one step closer to disrupting the current car T treatment landscape with the goals of increasing patient access through shortened manufacturing time.

Diesel decreasing manufacturing related cost and improving outcomes using advanced approaches for precise tumor targeting a control of the immune system.

We look forward to providing you with updates in the coming months.

Next slide.

Another precedent program, which continues to advance his PR Gn, five 001, which is our multi functional therapeutic candidate designed to treat solid tumors.

Updated preclinical models and head and neck cancer shown here demonstrate potential superiority to approved anti PD one checkpoint inhibitors.

Next slide.

Outside of pressure Jen I will provide a few updates on other therapeutic programs. One is our majority owned subsidiary Triple gene, which is working on potential treatments for heart failure.

We continue to move forward evaluating ion Xtend, four 001, which is the world's first investigational Triple gene drug candidate to target heart failure, which is a leading cause of death in humans.

We aim to address the limitations of current treatments with our investigational non viral plasmin based therapeutic candidate, which is designed to drive expression of three cardiac effect or genes involved in heart failure.

Triple Gene completed dosing in the first cohort of advanced heart failure patients maintained and left ventricular assist devices. These patients were administered IMAX and four 001.

To explore the safety of our triple treatment effect your drug through minimally invasive retrograde coronary sinus infusion delivery room.

Following review of data from cohort, one and independent data and safety monitoring board agreed to proceeding to the second cohort.

We look forward to providing dosing of data updates by year end.

Next slide.

Our wholly owned subsidiary after Biotherapeutics continues to progress its micro based therapeutic clinical program.

We announced that an independent data and safety monitoring board recommended advancing to the next stage of the phase one b to a clinical trial for AG 019.

Our potential disease modification therapy for type one diabetes.

We have initiated enrollment of the next two patient cohorts in the study.

Dosing adolescence.

In the phase two a arm in a combination of dosing AG 019, plus type presumably in adults.

Enrollment in these arms is progressing well as a reminder, type one diabetes is an autoimmune disease affecting over 1 million children and adults in the us with no treatment available for the underlying condition.

Finally enacted by our partner Oragenics is nearing completion of the enrollment of patients in the phase Twob clinical trial for AG 013 for the treatment of oral mucositis.

Which is one of the most common adverse effects associated with chemotherapy.

We are hoping to share first line data early next year.

Our final update here is going to be around our fine chemicals business, specifically the category production.

In June we partner with the terror wellness and an exclusive global licensing agreement to advance sutera as cannabinoid production at a reliable efficient cost effective industrial scale utilizing intrexons proprietary east fermentation platform.

I will now turn the call over to Tom for an update on some of our non health programs.

Our ongoing transactions and for a financial update.

Thank you Steve next slide over the first half of the year Okanagan specialty fruits placed fresh sliced Arctic apples to select markets as well as sold or dehydrated, Frank had active Apple snack on Amazon and launched this product in retail stores. The intent was to use our limited volume 2018, Apple crop to build market channels for the expected increasing volumes.

In April the company planted 955000, new.

<expletive> increase on 650 acres in Washington State.

This planting included the first 80 acres of Arctic Fuji's, which received approval from the FDA in April of this year.

Richard operations now total 1.9 million trees on 1250 acres.

We are expecting to crop up from 217 acres of Orchard in September October with an estimated 10000 bins were 8 million pounds of apples anticipated. This is a five fold increase over 2018.

Arctic Golden harvests will be completed in September and the Arctic grantees in October .

The company has plans to expand sales in the foodservice market channels with the 2019 crop.

Next slide.

Oxitec a wholly owned subsidiary of contracts on successfully completed the first pilot project of its second generation friendly Eightys digit day technology in Brazil in mosquito strain that unlocks new performance features greater cost effectiveness and scalability over oxy techs first generation mosquito.

In partnership with the municipal public health authorities in the city of India Tuba.

The pilot project demonstrate the new strains effectiveness when compared to a control area in suppressing populations of the eighties. The gip died mosquito the primary factor of dengue, Zika chicken going and yellow fever in for densely populated urban communities throughout the city.

Relative to the untreated control area releases of friendly male mosquitoes achieved an average of 89% peak suppression across two communities treated with a low release rate of mosquitoes in an average of 93% across two communities treated with a higher lease rate demonstrating excellent performance in the environmental conditions prone to dengue transmission.

One significant takeaway was that the low release a great area.

Generated suppression levels not far off from the high release areas.

But with five times fewer mosquitoes release, highlighting the potential the strain has to deliver strong suppression and far lower costs.

Additionally, Oxitec has submitted an emergency use permit you Pete the environmental Protection Agency EPA.

And is working closely with the EPA leadership to secure approval of the application this year.

Approval of this ERP will allow oxy take to implement its first US based pilot project with its second generation Mosquito technology in 2020.

Next slide.

Based on our assessment of the Companys present activities and prospects for concluding several transactions management continues to believe the Companys stated goal is achievable with respect to achieving the same net cash in short term investment position at year end as the company held at April 32019.

We have identified and implemented significant operating cost reductions however, based on progress to date and the ongoing evaluation of the company's strategic direction and long term best interest management has determined not to proceed and continuing its efforts to achieve the full initial target of 70 million in operating cost reductions instead, we will concentrate our focus on our overall net cash and short term investment position.

Intrexon is aggressively pursuing several transactions in various stages of closure.

Intrexon entered into a non binding letter of intent and received a non refundable cash deposit for the sale of exemplar genetics, a wholly owned subsidiary of Intrexon focused on developing miniature swine models of human disease.

The transaction is expected to close within the next 30 days pending completion of diligence.

We are considering offers for the sale of Trans Ova genetics, the company expects to close the transaction in Q4, Trans Ova genetics offers industry, leading embryo transfer technologies as well as advanced reproduction technologies in vitro fertilization sex seem in genetic preservation and cloning for dairy and beef cattle and small ruminants ships and goats.

The company also implemented targeted reduction of non essential programs, including closure of animal Sciences Division.

While these assets have provided great value to the company the sale and closure of these assets and others will help to streamline the company and significantly reduce future operating costs.

And now for a financial overview.

Second quarter, and six month revenues were $36 million and $59.3 million respectively.

Decreases of $9.3 million and $25.6 million from the prior year periods.

Our reported revenues continue to reflect the strategic direction to transition away from the FCC model and instead focus on internal programs and platforms that represent our most compelling opportunities.

Total operating expenses for the quarter were 73.4 million and $155.4 million for the year to date period decreases of 23% and 17% over the prior year periods. These declines reflect some of the cost cutting moves made in the second quarter as we execute against our plan.

We ended the second quarter with a cash balance of $125.8 million and as referenced in previous comments expect to finish the end of year with the same cash balance on hand as of April Threerd 2019, I refer you to the earnings release and 10-Q for additional financial information.

Thank you I'd like to now turn the floor over to our CEO R.J. Kirk for questions and answers.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

Please limit your questions to one with a single follow up.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Jason Butler with JMP. Please go ahead.

Hi, Thanks for taking the questions I had to make maybe first on the <unk> found a true platform given the agreement you just announced can you maybe speak to more details on what ownership or or rights that intrexon will retain to the platform as well as what its cost or or expense or spend a commitment that it has to the program going forward.

Yeah. Thanks for the question Jason [noise].

So, we'll we'll be providing more details as we move forward but.

In general our object here and this was directed by our board was to secure for our shareholders as much upside as we possibly can have from this program, while eliminating the need of Intrexon to fund this program any longer.

We've been working on our methane bioconversion platform for over five years, and we've spent a lot of money in it.

Actually more than more than has been spent by the two partnerships, we created to fund certain certain targets.

From that platform, so it's quite a bit of quite a bit of investment and you know I've been on these calls previously I've said. This this is very very potentially very likely in my opinion.

We will prove out to be the most valuable biotechnology ever created because and I make that statement based on the total addressable market.

That should be available from this platform.

And I still believe that so it was very important to our board we secure a that we secure upside advantage, but nevertheless, we've told all of you and we made a commitment to our shareholders and we have a commitment to ourselves and to our board that we are going to become a more focused company.

And Marcia and we want to Marshall our assets toward the those elements of our portfolio that we regard to be the most strategic of which ill just say here presage and it's obviously number one.

So that being the case and recalling that this company is first and foremost to health care Company. We began as health care company was entirely health care company, when I became CEO and that is clearly what our public shareholders will value we believe.

And so that that's what we're doing so the overall overall object here is.

Two I would invite the way you should think about this is all of our interest in our methane bioconversion platform all of the facilities all of the technologies that support their platform.

Will be transferred to a new entity MVP LLC I believe.

Its name and and so I, we begin with.

Super majority position over 80% I believe.

Equity ownership position, but we do not believe that that will hold.

In fact this subscription.

The subscription agreement.

Have a governor do Hearst alone will I think that thing alone will take us down to I think something in the sixties and thats before anything else may happen. So.

I'm just I'm only guessing here so its something in that neighborhood, maybe 70% but.

The point is overtime, we expect to be diluted in this enterprise.

Which is I think appropriate but on the other hand, we are enabling this enterprise I've I've commented before that I think intrexons number one number one job is the enablement of enterprise and we're really proud of the companies out there who are existing based on our enablement. This is going to be a great. One in my opinion.

Great helpful. And then just a quick follow up on them.

The health program. So for precedent five 001 can you just walk us through that that the highlights of the data in a little more detail about the at the differential efficacy in preclinical models versus PD, one and then any more color you can give us on the the though.

The therapeutic in terms of its modality or mechanism of action. Thanks.

On the latter will on both both of your questions I'm afraid I have to I want to defer at this time.

But I'll I'll trade you.

On this call three months from now.

Dr sounds of Ari will be here and you will really be the starting to show.

We will we will want to talk about our data at that time right now.

Even though I will tell you we're very excited about everything that's going on imprecision.

We're just not going to talk about any more data than doctors have already already has released.

Okay, Great I appreciate it and thanks for taking the questions.

Thanks, Jason.

The next question comes from Tyco Peterson with JP Morgan. Please go ahead.

Oh I'm sorry.

Hi, guys. Thanks for the question this is Dave yes.

Just a quick one on your commentary on Arctic Apple you said you have.

I think a fivefold increase this fall in production.

How should we think about translating that into an impact on on revenue.

You know starting perhaps the fourth quarter and beyond or is it sort of still too early to dimension that.

Yeah, Tom by secure I I'd say, it's too early to talk about it but we are in the process now working with foodservice and retail to secure the contracts for the purchase orders for the next season. So we will start harvesting.

As I said in October .

In September and October and we'll know as early as perhaps in August and September with this purchase orders are coming in.

Got it. Thanks, one thing I would say is that debt.

22018 crop.

You know it was only a.

In much smaller one fifth of what we're doing this time and when you have a crop that small when you go into the retail stores. They want a stream of product that is going to come in and it was hard for us to guarantee that we'd say, it's such a small supply. So we do expect that with this larger supply will be able to purchase orders throughout the season.

Got it and then on console well I mean, I know you've said that do you have plans to try and sell the asset by the end of this year.

But yeah.

I mean should should we be thinking of just removing it from the model starting in 2020 at this point or is it still too early and then secondly is it fair to call it sort of some sort of an inflection there given you know your where you are now flat sequentially were up a fair bit.

Because I think last quarter, you had called out you know issues in the cabinet business and weather in the Midwest stop being a drag on growth is that now sort of behind you.

Yeah, we're we're pretty committed to a transaction here tasia.

So isn't this a general bostic indicated so by the fourth quarter, we do expect to close the transaction on Trans Ova. Obviously, the you know the field has been you know the field has always been cyclical it's been cyclical for all of recorded time and it is going through a cycle. It really has nothing to do with our decision.

Our decision ultimately was based on which you know which ones of the ER business enterprises of wish they were about 15, I think which ones really constitute for our shareholders a strategic a strategic holdings.

We acquired Trans Ova based on our belief that we would be able to do a couple of things and we were able to do one of them and the other one is still in progress.

You know you have to you have to call time, sometimes.

I still think that the that option object number two.

Goal number two with the current Trans Ova is achievable technically.

I can't give you a date on when that will occur so the bottom line and it doesn't have a lot of nexus to to the rest of our strategic holdings.

Notwithstanding that it is an outstanding business. It is by far the leader in its field. It's the leader internationally in its field then the number one driver genetic gain in dairy cattle I'll go further they to all intents and purposes define what what the standard is for a high performing elite.

The lead member of that [laughter], Oh that species. So it's just it's an absolutely marvelous team. It's a marvelous business I think is going to be a great business with us or without us.

But it's just not strategic for for Intrexon currently and so you should expect a transaction by year end.

Got it and then I'll get on on your plan to just not pursue that $70 million on cost out. The CR can you just sort of walk us through what sort of Opex cuts. We should expect I mean, obviously, it's going to be less than 70, but are you willing to sort of quantify that and then any specific programs in terms of.

Bioengineering versus the health care side of the business, where those cuts will be sort of specifically focused.

We're not going to quantify it as a goal page as other than to say reiterate what we said.

In April and what we said in this call which is that.

We feel confident that we will end the year with with the same cash balance just through through our cost cutting and through our transactions that we'll we'll end the year with at least as much cash as we had at the end of one Q.

Which I believe is 175 million or so.

So that is what that's where I would guide you.

And the reason that we we have to come back today, and say that we're not going to expect to see $70 million in Cogs from operating cost is because as we got into this and as we began our partnering discussions and also some discussions around some possible dispositions of some businesses. We learned that you could really cut too far too fast you could impair your ability to sell a business at this at at at the same value that you would otherwise received by just cutting it too much. So if you ask or could we have could we have achieved the 70 million target. There's a question we kind of have we simply.

In the face of what we were I'm not going to get the real time data we were receiving in terms of partnering and you know and dispositions on on the things we have decided we would like to consider disposition.

We decided that cutting that deeply would not be in our best interest. So that's the reason for the qualification on that but just remember that the whole point always was to to really provide the company. The runway that we expect it is going to going to want.

In 2020.

By achieving the achieving the things that we've talked about for this year and we're really focused on these things. So the number one thing is really what's the cash balance and we're focused on that and we expect to achieve.

Got it thanks, so much guys.

Again, if you have a question. Please press Star then one.

The next question comes from Derik de Bruin with Bank of America. Please go ahead.

Hi, good afternoon.

Hi, there.

Hey can you give us the basically just the breakdown on how to look at upcoming healthcare milestones and just you've got some you have things in trial now I'm. Just can you give us sort of like what you're expecting in terms of potential data readouts in the second half 19, and 2020 just to sort of make sure that were you know understanding through like how the news flow the data flow can come out.

Sure.

Steve.

Yes, Derek we have I can refer you to our our health related deck on DNA dot com with less which lists our pipeline in the list of the upcoming milestones.

We specifically have announced the dosing of our PR Gn, three 005 and preserve zero six.

Trials, the ultra car T trials, we have not given any status update as far as when we'll expect to read out there.

As far as our ACO biotic products, we have.

Dosing in our second cohorts for AG easier, one nine which is the type one diabetes drug.

We just now on the call announced Uh Huh.

Data read out hopefully getting a next year for 013 in oral mucositis.

And then of course with our collaboration partner fiber. So we're expecting some readouts coming up in the next two quarters. So.

If you look at slide 24 on the FDIC that was the milestones there.

Great. Thanks.

And just thinking about the updated mosquito the second generation of any friendly from the eighties.

Okay any idea what are the what you mentioned that it was potentially lower production costs lower deployment can you sort of give us an estimate on how much cheaper. It is and also just any more ideas on.

On.

How that ultimately is going to be commercialized from revenue perspective, and then how to think about production costs in that market and was well just just anything more clarity on the business and the cost to deploy.

Yes.

I don't want to talk specifically about the costs were still working through that and we're talking.

At this time with some of the potential partners and partners that we would have considered before they didnt want to talk to us.

Rentokil and others working.

Really saw our technology is competition and one of the things when one of the features in this.

Generation of Mosquito is it it really turns off the resistance.

We believe it will turn off the resistance, we're testing that they turn off the resistance to pesticides.

So so that combined with the pesticides that don't work and yes that are limited in their ability to work, perhaps 40% or so effective we think these these other companies. These pests that companies will want a partner and make this just an integrated asset in their tools to fight mosquitoes I think when you look at the cost.

The example that I gave when you see that the relative numbers.

89% versus 92% or so suppression at least in that first field trial, when we're releasing far less mosquitoes, we're obviously going to be able to bring down the costs quite a bit but the specifics of what the cost or.

Rather come back to you later on that.

Fine and just one final question I mean, you're selling some revenue generating.

Assets right now to do some more experimental ones I am just curious on.

Sort of.

What is your shareholders had to say about that would have on the bondholders have to say about that and just.

It.

It's it seems a little unusually selling revenue generating assets to fund more of the fund to funds and things that are a little bit more.

Potentially higher risk I'm, just curious on what your conversations with your shareholders.

Yeah, So I'm the largest shareholder so I have conversations with myself and I also have conversations with the second largest shareholder who is Merck kgaa.

I have conversations with I think all of our name shareholders and I converse regularly with I'll say.

Maybe.

50, or 60 retail holders.

So I think I got a pretty good handle for how people are thinking.

At least those those are those of the of the shareholders too.

With whom we communicate and I think that like is this I think that probably represents.

Oh, total probably 75 or 80% of the ownership of the company maybe more.

Yeah, probably close to 90% as I think about it.

So I think I can speak to this topic.

They are hugely supportive Derek.

And they are usually supported because.

Intrexon as I mentioned before was really founded as a healthcare company has always been focused on health care health care, It's always been our principal business we've made no.

No no variation on that we did expand.

And if you are thinking of a biotechnology company and you just want to.

If you want revenues right I mean, I could make several suggestions to drug wholesalers have done tremendous revenues.

So I can make several investment recommendations we were interested in in that but that's not how you in my opinion and then across my career as not how you grow value not how you create shareholder value.

By itself.

So I haven't encountered any.

Having put any resistance or any criticism of any time from any of our shareholders on this topic.

Okay.

Thanks, very much I will get back in paint Derek one quick point I failed to mentioned that IMAX four 001 were.

We are expecting to give an update on cohort one aided by year end as well as dosing in cohort two so just bring that your attention as well.

Great. Thank you.

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

Sure well thanks, everyone. Thanks once again.

It's actually a pleasure to be.

Speaking with you today, and we look forward to our ongoing dialogue.

As I'm speaking on behalf of the management team and indeed on behalf of our board. We're very seriously intended about the objectives, we laid out.

We are confident that we are going to achieve.

The object as we've laid out for ourselves in the balance of this year were I think the team is executing very well against these objectives.

And I think that we will be able to reward our long our long suffering and patient shareholders ultimately.

That's our that's our primary mission.

And we're very very focused on that mission show. So again, thank you very much and we'll be speaking to you over the next weeks and months about how we're doing.

Thank you.

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