PGEN Q2 2018 Earnings Call
Operator: Good day everyone, and welcome to the Intrexon Second Quarter and First-Half 2018 Investor Conference Call. I'd now like to turn the conference over to Steve Harrison. Please go ahead.
Steve Harrison: Thank you, William. Welcome to Intrexon's second quarter and first-half 2018 investor conference call. I'm Steve Harriso, Vice President of Investor Relations at Intrexon. And I'm joined by Joel Liffmann, Senior Vice President of Finance; Bob Walsh, Senior Vice President of Energy and Fine Chemicals; Thomas Bostick, Intrexo's Chief Operating Officer; and Nir Nimrodi, Intrexo's Chief Business Officer. R.J. Kirk, our CEO, will join us for Q&A. During this conference call, we will make various forward-looking statements. Investors are cautioned that our forward-looking statements are based on current expectations and are subject to risks and uncertainties. In particular, this afternoon's press release and our discussions may reference certain estimates with respect to our financial performance, including estimates of our revenues and earnings per share for the second quarter and first-half of 2018. A number of factors could cause actual results or outcomes to differ materially from those indicated by our forward-looking statements. Please read the Safe Harbor Statement contained in the press release as well as Intrexon's most recent SEC filings for a more complete description. On today's call, we will provide an update of our core businesses, highlighting progress over the last quarter with the focus on what we anticipate to near and long-term drivers of shareholder value. The recap will be followed by a Q&A session, which will be led by our CEO, R.J. Kirk. First, however, I would like to invite Joel Liffmann to give us an update with respect to the filing of our quarterly reports.
Joel Liffmann: Thank you, Steve, and good afternoon everyone. As you saw the filing of our Form 8-K this afternoon, we will not be filing our Form 10-Q today as originally expected. Rather we expect over the next few days to be completing the restatement of our first quarter Form 10-Q and then filing our Form 10-Q for the second quarter. The filing delay for the second quarter and restatement of the first quarter are due to our implementation of the Accounting Standards Codification Topic 606 effective January 1, 2018. ASC 606 is a new revenue recognition accounting standard. It requires that we change the way we recognize deferred revenues, which in our case relates to fully refundable, fully non-refundable, and fully collected technology access fees previously recorded and prior to this year recognized on straight line basis. Recently in consultation with our external advisors, we concluded that it's appropriate to provide our technical accounting analysis for certain aspects of ASC 606. As a result, we will be restating our first quarter Form 10-Q, which will result in a significant reduction of deferred revenue and accumulated deficit, and a more modest downward impact on our revenues and earnings. We still need to complete the work on ASC 606, and on a preliminary basis it appears that we will reduce the January 1, 2018 opening balance sheet deferred revenue account by $67 million, resulting in a balance of $210 million. This reduction will of course impact our reported revenues going forward, but I remind all that these area non-cash revenues, and are being recognized over the next several years. As I noted, we expect to file the restated Form 10-Q for the first quarter and the second quarter Form 10-Q sometime over the next few days. In the interim however, we thought it would be helpful to provide estimates for revenue and earnings per share for the second quarter, and to provide you with an update on our actual business operations and the progress we are making from a scientific and commercial point of view. Please note that these estimates are just that, estimates. And they are subject to change and revision as we complete our view of the second quarter results. We currently estimate for the second quarter of 2018, our revenues will be approximately $45.3 million. The net loss attributable to Intrexon will be $65.4 million, including non-cash charges of $43.9 million. We estimate our earnings per share will be a loss of approximately $0.51 per basic share. These are of course preliminary estimates not results based on our current expectations and are subject to finalization, including completion of our procedures for our Form 10-Q, and completion of our technical accounting analysis for ASC 606. We apologize for the inconvenience posed to our shareholders and analysts by our delay, but we do not believe that the delay will be long. And again, I point out that the matters under consideration relate entirely to the classification and amortization of non-refundable monies historically received. So any adjustments in these items are technical and purely non-cash matters. On the other hand, we are excited to have this opportunity to update our shareholders on the business of Intrexon. I would now like to hand things back over to Steve for the business update.
Steve Harrison: Next slide, when thinking about Intrexon it's important to understand the process by which we address global challenges with the precise control of biological systems across microbes, plants, animals, and human cells. At its core, Intrexon works to effectively express and regulate genes in a wide range of cells and organisms for a wide range of applications across a diverse spectrum of large end markets where we believe we can achieve high-performing and significantly differentiated businesses. Next slide, as we review these platforms today, we continue to believe that energy and health will be the key drivers of value this year. While 2019 will be the year when our plant and animal programs have matured in scale to the point where they too will be measurable drivers of shareholder value. I would now like to turn the call over to Bob Walsh for an update on one of our near-term value drivers, the Intrexon Energy Program.
Bob Walsh: Thanks, Steve. The promise of Intrexon's proprietary and proven methane bioconversion platform is lower operational costs and capital expenditures per ton of product, higher conversion efficiency and ability to scale down as compared to conventional natural gas upgrading technologies. Our process turns natural gas, the lowest cost and most widely available form of carbon, into higher value carbon outputs using a type of bacteria, called methanotroph, that naturally metabolize methane, which is the primary component of natural gas. Next slide, since [indiscernible] oil and gas prices in 2009 a tremendous gasoil [arbitrage] [ph] has emerged from [indiscernible]. Even today, as oil has risen above $65 a barrel, North American natural gas has not broken $3, the equivalent of $18 oil. Although we expect some volatility, the long-term trend remains intact. Next slide, over the past several years the Intrexon team has assembled and fine tuned a genetic toolbox as an approach to methane upgrading. Commercial magnitude of this platform is [immense] [ph]. Our lead product, 2,3 butanediol, which is catalytically converted into synthetic rubber is a $22 billion annual opportunity alone. And the four chemical and two fuel molecules being developed have a combined annual market opportunity in excess of $1 trillion. Synthetic rubber business is also growing [indiscernible] GDP as even electric car require tires. This market opportunity has generated a high level of interest. We can share that our partnership discussions continue to advance. Our plan to break ground on a commercial butadiene plant by the end of the year remains in place. We have narrowed the sites down to two locations with two different partners both with significant existing infrastructure. We're in the process of kicking up engineering for the two sites for further optimization. Site selection was actually challenging given the large number of suitable sites with existing infrastructure which speaks to our ability to scale up after the first facility. For this first facility we can share the following, the capital expenditure for 40,000 tons per year 2,3 butanediol capacity further converted to 26,000 tons of butadiene is estimated at $75 million on a Greenfield basis. Construction time is 12 to 15 months depending on weather and trade availability and a July butadiene contract price at 1,400 per ton we're projecting a gross operating margin of almost $1,000 per ton over $25 million of EBITDA. For modeling purposes a large scale facility would produce $100,000 tons per year of butadiene and we expect capital costs [to not] [ph] increase proportionally but to the 0.65 power. Next slide, in the second quarter there were measurable scientific advances. For 2,3 BDO we saw an additional 22% increase in yield putting this program further in the money. Intrexon scientists continue to engineer the organism to improve utilization of natural gas as a carbon source improving the potential operating margin. Further utilizing our proprietary toolbox our scientists have developed strains with improved utilization of components other than methane, such as ethane, that are typically burnt in the off gas. Please note that the economics I previously mentioned assume components other than methane are burnt in the off gas. As we mentioned on our last call we successfully converted 2,3 BDO in on specification 1,3 butadiene which is the beginning point of synthetic rubber and we did so at an efficiency of over 90%. This milestone provides further evidence of commercial viability and has expanded our partnering discussion. Now, I would like to turn things over to Tom Bostick for an update on our health and Vector Control businesses.
Thomas Bostick: Thank you, Bob. Before I take you through some of our human therapeutic programs I would like to announce that Dr. Helen Sabzevari, President of Precigen will host an Analyst Day in Germantown, Maryland in Q4. At this meeting Dr. Sabzevari will provide an in-depth review and update of our cell and gene based therapeutic programs. We're excited for Dr. Sabzevari to expand on these programs in Q4 and will make details available in the coming weeks. Next slide, now for a review of our subsidiary ActoBio Therapeutics; the ActoBio platform offers many opportunities to address a range of conditions as it provides a unique delivery mechanism of synthesized therapeutics [inolactis] [ph] a microbe used in food production that has a history of safety in humans, further the construction of the treatment can be done with limited genetic modifications and allows for scale. Next slide; on this slide, you can see how we plan on advancing this platform across gastrointestinal, autoimmune and systemic diseases. ActoBio is progressing well with its plan to create the broadest and most advanced clinically stage pipeline of micro based therapies and we expect to partner either programs, the company itself, or both in the near future. A few updates on the Acto pipeline. The safety data on the first patients is complete in the Phase 2 clinical trial for AG013 in the treatment of oral mucositis, 24 patients were randomly allocated to the study and 19 of those patients completed the safety evaluation for oral mucositis which is one of the most common adverse events associated with cancer chemotherapy. Oragenics our partner is now planning to begin enrolling the remaining 160 patients. Data from this study is expected to be available in Q3, 2019. Dosing of the first patient is imminent for AG019, Phase 1b2a treatment of early onset Type 1 diabetes. This is a disease which impacts over 1 million children and adults in the United States with no treatment available for the underlying condition. The Phase 1b portion of the trial will deliver AG019 alone to demonstrate safety and the Phase 2a portion will include a low-dose anti-CD3 to calm the immune system and stimulate T cell homing in the gut. This represents a game changing opportunity, should the results in humans replicate our preliminary models. Our animal model showed up to 89% reversion to a normal glycemic range in animals with early stage disease. For enrollment we're targeting 20 potential sites in the United States and three in Belgium. Finally in AG017 an immune tolerance approach for the treatment of celiac disease, we're targeting a Q1, 2019 IND based on the cGMP clinical batch production and ongoing repeat dose toxicology study. I want to provide a brief update on Exotech, based upon our positive progress developing a manufacturing system for targeted exosomes as well as our progress loading diverse RNA molecule classes into them we've transitioned Exotech from a two target oncology therapy company into a much broader drug delivery company. While our targeted exosome platform can be used for delivering small molecules as well as proteins we're focusing our efforts on RNA based therapies due to the continued commercial advancement of mRNA, micro RNA and diverse antisense therapies. With the expansion of the scope of Exotech Intrexon now owns 49% of the company with a strong need of a very large number of therapeutics companies that are active in these kinds of payloads to safely deliver them on a cell targeted basis, we look forward to Exotech becoming a drug delivery collaborator of choice and thereby a very nice business for us. Next slide shifting gears I would now like to take some time to review and update you on our self limiting mosquito program. Of note we announced in June that Oxitec a wholly owned subsidiary of Intrexon entered into a cooperative agreement with the Bill and Melinda Gates Foundation to develop a new strain of Oxitec self limiting friendly mosquitoes. This new strain is being constructed to combat a mosquito species that spreads malaria in the Western Hemisphere. The anopheles albimanus strain will be developed to address one of the most significant factors of malaria in the Americas. We're very excited about this opportunity to work with the Bill and Melinda Gates Foundation and the scientific research has already begun. Oxitec is making that shift from its first generation OX513 to its new second generation OX5034 strength. In May, Oxitec launched the first field trial of the second generation mosquito in the city of Indaiatuba, Brazil. This new strain has many technical and commercial advantages over the original OX513 strength. Oxitec will no longer require a large centralized factory model to mass rear its mosquitoes as the new strain uses genetics to eliminate the need to mechanically separate males and females. In part as a reflection of this new feature Oxitec closed its mosquito factory in Brazil as the new strain will provide Oxitec far more flexibility in quickly servicing different locations with significantly reduced cost of goods. Additionally given that OX5034 produces only viable male progeny a new product modalities are possible. Oxitec is currently designing a new product that once through the regulatory processes will give Oxitec the ability to sell directly to the consumer and commercial markets rather than only to governments. From a performance standpoint, OX5034 males mate with wild females and produce non-biting male progeny that survive to adulthood, half of which carry on the self-limiting gene allowing for a diminishing, but multi-generation suppression effect, thereby reducing cost and improving suppression performance. Another unique benefit derived from OX5034 is the fact that a portion of each subsequent generation of surviving males persists in the environment, mating with wild females without passing on a self-limiting gene. As a result, those males introduce non-insecticide resistant genes into the wild mosquito population or areas experiencing insecticide resistance among wild mosquito populations OX5034 can help reverse this. We believe this will provide significant value to pesticide companies and governments working to extend the life of judicial insecticides, but today are becoming increasingly ineffective, and for customers using integrated vector management approaches. I would now like to turn things over to Nir Nimrodi for updates on our food and animal platforms.
Nir Nimrodi: Thank you, Tom. I will now take your through some of our programs and enterprises that are dedicated to food, animals, and agriculture. Next slide please, to-date we have planted approximately 900,000 arctic apple trees on 590 acres of orchards. This growth is in line with our expectations with plans to plant an estimated 1 million more trees in the spring of 2019. This aggressive planting rate is one of the largest planting campaigns undertaken by any company to-date. Okanagan Specialty Fruits launched sliced fresh apples in the fourth quarter of 2017 with the limited supply of fruit. Consumer reception to the apples has been very favorable. We expect to harvest approximately 10 times more apples this fall as we did in 2017. This is going to allow us to increase our product presence to an anticipated 1,000 retail stores for an estimated six months period, beginning the last quarter of this year. This is the function of trees maturing to three years, the age in which they begin to produce viable fruit. Once mature, these trees can produce apples for up to 25 years. For this reason, as well as our plants growth and trees planting, we expect this to turn into a meaningful contributor with $30 million to $35 million in revenues in 2020 and ramping very nicely thereafter into a considerable business. This forecast is higher than our original plan. Thanks to the progress we have been making in our orchards. This fall's larger volume will give us our best as to-date of the power of the arctic apple to capture a significant share of the 500 million sliced apple opportunity in the U.S. and even grow it. As a reminder, we also continue to advance non-browning traits in avocadoes, pears, cherries, and lettuce. Next slide please, now for a recap on AquaBounty. Our majority-owned subsidiary and the owner of our elite protein product in food, the AquAdvantage Salmon, a Salmon that achieves market weight in half the time and on less food required by any other salmon. The AquAdvantage Salmon is produced on land in controlled environments, which we believe will provide higher quality products ones free of antibiotics, vaccines, and C-pathogens. The salmon industry achieves $12 billion a year in revenues, and we believe that we have the best asset in the field. AquaBounty recently completed the second bulk sale of AquAdvantage Salmon produced from its farms in Panama. We're delighted to know that consumers already are enjoying this healthy and nutritious food, while we continue production and market expansion activities. In April, this year, the FDA approved an Indiana land-based facility to raise the AquAdvantage Salmon, but the program remains on hold pending final labeling guidance, which we know the U.S. government is presently working on issuing. AquaBounty is prepared to comply with the stated requirements, and expect a decision in the near-term. In the meantime, the Indiana facility is now stocked with additional Atlantic Salmon until the permission is granted to import our AquAdvantage eggs. AquaBounty continues to advance facilities in Canada, and is also looking at options for new growing facilities. Next slide, please. Trans Ova Genetics is the leader of bovine genetics in North America. As such, they are one of the leaders in production of elite breeding cattle in both the dairy and beef industries. The Trans Ova solutions work to expand genetic gains through IVF and embryo transfer. We mentioned in the past that we wish to allow more farmers access to elite genetics by creating embryos that they can simply purchase rather than relying only on IVF and other services. Since the beginning of the year, we have already sold thousands of embryos. These elite embryos are accelerating the productivity gains we want our customers to benefit from. We're pleased with the progress of this program and note that despite headwinds to the dairy and beef markets, Trans Ova marked year-over-year growth. Finally, on Trans Ova, we have developed a technology that should provide us another option for improving the genetics of herd, and this is something that we call [raiser] [ph]. Simply put, [raiser] is the application of genomic coding to engineer elite bulls in a way so that while the bulls are engineered, the offspring will be normal, except for the fact that they will have some of the excellent bred-in genetics of the bulls that we engineered. While we have not been producing these bulls long enough for them to have offspring, we certainly like all of our data thus far. This is one of several initiatives that we have ongoing at Trans Ova that have the potential to move this business up the technology value-added curve. Another enterprise showing great improvement is Exemplar Genetics. The genetically-engineered MiniSwine drastically improves the predictive value of preclinical trials as compared to the traditional mouse model. In turn, this can help bring human therapeutics to market sooner. We're seeing a growing interest in our models, and are enjoying accelerated revenue growth of this business, which we expect to attain profitability this year. I'll conclude my comments on Exemplar by saying that Exemplar is not just a disease model company. The MiniSwine pigs are more similar to humans genetically and anatomically. Exemplar is the most advanced pig genetics company, and already has collaboration in place in the field of regenerative medicine by allowing for cells and organs to be produced in these animals. We will provide further updates on these expanding market vectors as such updates become available. Next slide, please. This is our program that produces Black Soldier Fly-based products. These insects are highly effective in converting waste to feed, producing about one to two million pounds of usable protein per acre annually. In our joint venture with Darling Ingredients, EnviroFlight is advancing on schedule towards its goal to open the largest Black Soldier Fly facility in the U.S. in 2018. This facility is built in a modular manner to allow for expansion based on market demand. Phase 1 which will open in Q4 this year will have the ability to produce 900 metric ton of product a year, and is designed to scale up to 3,200 metric ton, and the current sales order book is looking very promising. Next slide, please. Finally, with Intrexon Crop Protection, we continue to actively work with a leading agricultural company on self-limiting fall armyworm. The insect alone caused an estimated $13 billion in crop losses since 2016. [Indiscernible] targeting damaging insects without the off-target effect of spraying additional pesticides. We continue to make progress in advancing our project to help control fall armyworm in broad acres crops. This technology provides, in addition to existing [indiscernible] tools in combating fall armyworm, which is a concern for growers throughout the world. A recent analysis supports our internal modeling that it is feasible to sustain trade effectiveness against this insect with appropriate application of our product. We expect to initiate field trials in Brazil pending appropriate regulatory approval. In summary, as you could see, while the company currently devotes the majority of its resources to its efforts in energy and health, I hope you can see from this brief and incomplete sampling of other businesses that we are building why we refer to 2019 as the year of plants and animals.
Operator: And we will now begin the question-and-answer session. [Operator Instructions] And the first questioner today will be Jason Butler with JMP Securities. Please go ahead.
Jason Butler: And thanks for taking the questions. First, just following on from the plants and animals theme, can you maybe give us an update on the Botticelli program, and then just remind us what you think that the TAM for the Exemplar Genetics MiniSwines are? Thanks.
Randal Kirk: Hi, Jason. Yes, sure. Well, first, with Botticelli, our initial application of this technology, as you may recall from a couple of quarters ago when we first talked about it, is lettuce. And we mentioned earlier that we're working on non-browning lettuce. So if you put the two together, you can realize that we're using Botticelli to accelerate development in non-browning lettuce. I can tell you so far we're working in 11 different genotypes of lettuce. We like all the data that we're seeing and we think this could really be significant in terms of improving its shelf life. We've also been working on tomatoes. All of our data there are exceeding that -- yes, we believe that anyone has ever produced by, very consistently, 20X or something like -- you know, it [indiscernible]. And we are currently squared off with some very large companies that produce in grow houses tomatoes around the world at very large volume. So stay tuned for that. I think some people may recall that when we first talk about Botticelli, the social media kind of lit up the next day on an opportunity that we hadn't thought of, but when we described the technology suddenly people were calling us the day after our conference call saying, "Have you guys thought about using this in cannabis?" So the answer was no, we had not thought of that, but we've given it a lot of thought since. And we've learned from the top companies growing cannabis in the world today in markets, where it's legal to do so, that Botticelli looks like a very, very promising enabler of that rapidly-evolving consumer and medical industry. So we are very active in negotiations with some of these companies now. And again, just stay tuned, but we're very excited about the process. There are other costs that we're working on right now in terms of proof of concept, and we'll be providing more details on these as the data becomes available. What was the second question?
Jason Butler: The TAM for Exemplar?
Randal Kirk: It's really hard to say, Jason. When you think about the size of Charles River Labs, for example, which does -- I think around $500 million a quarter, I don't know how much of that is in their mouse models, but I'm pretty sure it's the majority of it, and then when you consider for therapeutic developers what the predictability or the predicted value of rodent experiments in therapeutic disease models really is, as compared with our [indiscernible] MiniSwine. We think this has a very, very good market. The real high value-add component though is that we're engineering -- we're confident we have the only FDA-approved genetically-engineered pigs thus far on the market, and we continue to develop custom disease models with therapeutic companies that have significant appetite to obtain superior knowledge of the phenotype side of a disease. And so that business is really going well. I don't think I can estimate the TAM today. It's already growing, as was just alluded to, as Nir just mentioned. It's growing faster than we thought it would, and we're getting a lot of interest. What's really intriguing the heck out of me though now is the amount of interest we have in using our engineering of these pigs, which remember, these pigs, they grow up to be about the same size as a human being. And so, now we're engineering these pigs in the field of regenerative medicine. We have a couple of partnerships already, and some more that are in negotiation now. And so, we find this part as -- Nir, what do you call it, as value vector or something. We find that really intriguing. So it's really, I think, going to be two businesses. One is -- well, you can look at it as three. There will be standard disease models in which we'll sell the pig, right. Then there will be custom disease models in which we could operate basically like a CRO and actually perform the work for a therapeutic company in pigs that had to engineer it with a particular human disease. And then, the third element is to use all of these technologies, including our genetic engineering of these pigs to produce cells and again potentially even organs for transplantation. So it could be quite vast, but we [indiscernible] that. I'm just thrilled it's going to be profitable this year, so it's tracking very nicely, but thanks for the question.
Jason Butler: Great. And then if I can, just one big picture question, R. J., looking to be -- well, it does connect between the enthusiasm of you and the team versus -- and the progress you're making versus the traditional milestones, investors look for in value. So, can you maybe talk about how you think about continuing to incentivize innovation internally versus getting rewarded for that externally? And in that context, how does that impact how you think about the business structure with the changes you've made in the last 12 months, capital structure, and access to capital? Thanks.
Randal Kirk: That's a mighty big question, Jason. I'll just mention two things briefly about. One is, I realized more than anyone because I hear a lot from our shareholders, maybe Steve hears from more of them, but we speak with our shareholders very frequently. And I think what they are really looking for is for us to drive something across the goal line in terms of a big attainment that really punches through commercially. And that's our primary focus. We've called 2018 the year of energy and health, and I think we've got a quarter-and-a-half left in 2018. I think we're going to deliver on both of those promises for 2018. A success of that type, Bob told you the latest numbers on 2,3 BDO. In my opinion, that product alone is worth more than the market capitalization of Intrexon. So I think that share price and capital formation capabilities for the company will sort out in the near-term once we produce such a success. The second part of your question is one that we've been working on for a couple of years, and I think we've already given some advice about how we're going to proceed. And that is we realize that Intrexon as being a broadly distributed genetic engineering company, of course, it's really more than just genetic engineering; if you think about Botticelli and EnviroFlight, and so it's really -- when we say engineered biology, it's the application of principals of industrial engineering to biology more generally. But certainly includes biology. And when you think about it broadly, we realize that we fly in the face of the existing pools of capital and standard industrial taxonomy. I think the world likes to see therapeutic companies that are therapeutic companies as such. And certainly the pharmaceutical industry has evolved along those lines. I remember when I first started in the therapeutics industry, American Home Products not only owned Wyeth Labs; they also owned Chef Boyardee, right? And you don't see anything like that going on anymore. In fact you see Pfizer struggling to get rid of their consumer products business, and that kind of stuff really is just not pharma enough. And the reasons they would do that isn't because there are no resources that can be shared between those two, there's not skill set, blah, blah, blah, of course there are synergies. I think it mostly relates to the fact that investors would rather see -- would rather really like to be able to compose their own portfolio, their own investment portfolios. And so, we're trending in that way. You heard a reference earlier to the fact that it's entirely like ActoBio is not going to be a 100% owned subsidiary of Intrexon. And eventually I think you can expect to see that as an independent company staying with Precigen. Our ideal scenario for, even energy, frankly -- and Bob and I will be meeting with some very senior people in the energy industry next week as far as that process, but our ideal scenario, what we're really fishing is a 50-50 joint venture between us and people in that segment. And the reason that Intrexon doesn't have to own 100% of everything that it enables is because we're not going to run out of new things to do. We're very, very confident of that. And so, once you know that, we realized there is couple of years to go, it really becomes incumbent upon us, I think, to allow the enterprises that we've enabled to enjoy their own life. That doesn't mean that we can't participate in their economic success, and it doesn't mean that we can't benefit along with any other owner or partner, but that's the way -- I think that's the general trend line.
Jason Butler: Okay, that's helpful. Thanks for the color, R.J.
Operator: And our next questioner today will be Tycho Peterson with JP Morgan. Please go ahead.
Tycho Peterson: Hey, thanks. One for, maybe Bob, just on the planned [ph] scale-up, you mentioned getting close to signing a partner there. Can you maybe talk as to how you think about the economics, you talked about $75 million cost, will they pick up most of that or how do you think about the split? And is the %25 million in EBITDA what you're committing to for 2020?
Bob Walsh: Thanks, Tycho, that's a good question. Couple of different ways to think about scale-up, and I think there's two different -- yes, as you know we're going down two different paths. One is the activity we hade going on with [indiscernible] on strategic partnership, and looking at that as -- it was different capital formation around it. The other thing that we have talked about in the past, and you and I have talked about [indiscernible] February-March, is what we previously talked about is more of a toll processing arrangement with the third-party that is Colony Energy Business, where they build on operators to maintain, and we give them a return of capital. We take all the commodity risk, which is [indiscernible] talked about, it's really the commodity risk. That also has the benefit of a co-location, which is where we are keen on, because as I mentioned, the 75 million of the Greenfield basis if we had to build the roads, the rails, everything associated with that. There is no [indiscernible] infrastructure. So that has the benefit of adding that infrastructure. So in some ways, you are using other people's money. You have to pay return of their capital, but you gain efficiencies in a sense of operational and capital efficiency. So that's kind of the scale-up. Does that help, Tycho?
Tycho Peterson: It does. And then the contracts you're deciding, these are kind of five to 10-year take or pay type contracts with the end customer. Is that right?
Bob Walsh: Yes. [Indiscernible] contracts, yes, they're five to 10-year take or pay monthly contracted, monthly negotiated prices.
Tycho Peterson: Okay. And then, I guess back over to healthcare for a minute, R. J. can you just comment if there is any update on Fibrocell following in from safety data we saw for FCX-007?
Randal Kirk: I don't think we have anything to offer beyond that what John Maslowski and the folks at Fibrocell have provided publicly, Tycho.
Tycho Peterson: Okay. And then, I think you are also talking about making opioid collaboration there with Epimeron, can you maybe comment on that?
Bob Walsh: It's Bob again, Tycho.
Tycho Peterson: Yes.
Bob Walsh: Yes. We had been, and I think we most recently we announced that the collaboration with Epimeron producing novel enzyme that they brought out a plan that actually causes the -- allows us to make [indiscernible], and I think we are patent-protected. We really wanted to have that. So it allows us to get the [indiscernible] which is base for the opioids from that. We have always made great progress on it, and we're in a lot of discussions on it too. So it's quite exciting that we are the first ones to get there from to eliminate the poppies and a lot of the issues that come around obviously from certain countries, and also just the cost of production predictability.
Tycho Peterson: All right. Last one from me, just on Trans Ova on the raiser [ph] technology, how far away do you think that is from being commercialized?
Randal Kirk: We as intimated we really want to see the offspring of the animals we have created, the raiser animals we have created. So in pigs, it's you know, maybe happier, and in these [indiscernible] we have both -- well, we have two variety -- you know, somewhat longer.
Tycho Peterson: Okay. Thank you.
Operator: And our next questioner today will be Robert Breza with Northland Capital Markets. Please go ahead.
Robert Breza: Hi, thanks for taking my questions. R. J., most of my questions have been asked, but not to get too technical, but your [indiscernible] trade, so…
Randal Kirk: I did eventually find honest employment there, Robert.
Robert Breza: And so, as you think about these negotiations that you are in the two partners, have you moved beyond the letter of intent stage to contract negotiations, or where are you at from a legal standpoint of you to like get this locked and loaded for -- by the end of the year?
Randal Kirk: Well, I'm not sure which process you are referring to, but the answer will be same regardless of the process, because in any one of these processes, we probably have people at different stages. And I don't want something to hear on this call, you know, that they are either in the front door or in the rear. So they are all in front. But the real answer to your question is we are at a variety of stages with a variety of partners on a variety of projects.
Robert Breza: Okay. But do you kind of have at least like a letter of intent understanding of how things are going to progress, is that fair?
Randal Kirk: Can you repeat the question? I'm not sure I followed it.
Robert Breza: You have a letter of intent kind of how things are going to progress, and like a general understanding?
Randal Kirk: Yes. So we are certainly circulating term sheets, and we have delivered some definitive agreements as well. I'm not sure I'm really getting the gist of your question. As I mentioned, I think we will be where we wanted to be at the beginning of this year on energy -- by the end of this year, and I think you will see some significant developments at each of our therapeutic companies as well in the remainder of this year, and let's not forget our partners iPharm [ph], which I watch it pretty closely if I were you, because we are pretty excited about what was going on there as well.
Robert Breza: Fair enough. Thanks, gentlemen.
Operator: And our next questioner will be Derik de Bruin with Bank of America Merrill Lynch. Please go ahead.
Mike Ryskin: Hi, guys. This is Mike Ryskin on for Derik. Thanks for taking the call. I wanted to follow-up on a couple of points you mentioned on Okanagan Specialty Fruits update, on the artic apples you mentioned you increased the 2020 revenue forecast. In the past you have talked about 20 million in 2020, and then ramping over time as the planting space grows, with final number of 500 million in 2026, and you know, 50% gross margins, EBITDA, et cetera. Just curious the bump from 20 million to 30 million, does that flow through to the later year, or is this more about you got more apples down this year or you know, essentially I'm asking is what is the secured [ph] 2026 numbers?
Randal Kirk: That's a great question, Derik. And I'm happy to provide the answer, because it actually is the productivity per tree exceeded our original estimate. So it does flow through the later years.
Mike Ryskin: All right, thank you, that's helpful. And then a follow-up on the unverified opportunity, just curious there, can you talk a little bit more about who your customers are going to be, how that's progressing, and any kind of revenue estimate or ballpark you can give us, you know, you talked about the 900 metric ton scaling to 3,200, just give us something to size that opportunity.
Randal Kirk: Yes. So unfortunately I can't give you any detail about that. We are closing, as you know, we are 50-50 joint venture partner, EnviroFlight with Darling Ingredients, and we closely coordinate messaging with them. So I can tell you that what we disclosed today in terms of the nameplate [indiscernible] and what we disclosed today in terms of the nameplate and so forth, obviously we have discussions with them. Beyond that, I don't think we are able to disclose, although we did allude to the fact that the order book is looking really good. What just fascinates me about this entire project is that every component has a market even what they call the [indiscernible], which is truly the waste product of [indiscernible] billions of Black Soldier Fly [indiscernible] that has a very attractive market. And so, we are able to sell a lot of components out of this production stream. And because of that, we are happy to have the partner we have, because Darling has a lot of expertise in really figuring out that the appropriate product mix and pricing and so forth that's really rotating for a living. So we are really excited about this project.
Mike Ryskin: All right, thank you.
Operator: And this will conclude our question-and-answer session. I would now like to turn the conference back over to R. J. Kirk for any closing remarks.
Randal Kirk: Well, I don't really have much to say. I think as we have indicated, we are very squared off right now on -- we have recognized our responsibilities. We're very square off on executing. And I think we will do so. So meanwhile, we do have exciting things coming up in other fields that we will be talking about more in the future. We don't call 2019 year of plants and animals for nothing. I have mentioned -- I was in a meeting with a senior U.S. government official, and I was surprised about how much he knew about Intrexon. And then I learned that he told me 75% of the files they have for genetically engineered animals were ours. I never really thought about it from a regulator perspective before, but if you really combine, if you think about all the insects, pigs, fish and et cetera, et cetera, you know, it's really quite impressive. And it's a genuine position of industrial leadership, and just what we always hoped to obtain, an encouragement. And certainly we want to see that turn into big business. So, just back to the original point, it's sentimentally about business. So, this is a company that I think as I had indicated in the press release, has a really long display of tremendous potential and leadership in the field of synthetic biology. But I'm a business person, first and last, we've got wonderful technologists in this company, in fact about 70% of the people in this company work in R&D. Our big wish right now is that a lot of [indiscernible] people help us turn a lot of these projects into businesses, and half of the order is energy and health. And that's our principal focus. We spent not only the majority of our time in those two areas, but also the majority of company's resources of really every type this year [indiscernible]. So, stay tuned, and thank you very much for your interest.
Operator: And the conference has now concluded. Thank you for attending today's presentation. And you may now disconnect your lines.