Intrexon (Nasdaq: XON) is taking the new field of synthetic
biology into the commercial stage. Wow, it’s already a US$2bn company!
Intrexon (Nasdaq: XON) – Betting on the future of synthetic biology
“What I cannot build, I cannot understand” – Richard Feynman, American physicist and Nobel laureate (1918-1988).
When we look back in time we may regard Thursday 20 May 2010
as a major landmark in the evolution of the global economy. That was the day
when the J. Craig Venter Institute (JCVI), of San Diego and Rockville, Md, announced
that it had created the world’s first self-replicating synthetic bacterial
cell. The same Craig Venter who had won the race to sequence the human genome
in 2000, and subsequently sailed his yacht around the world discovering thousands
of new species of ocean-dwelling microbes, was now publishing his greatest-ever
biological feat. Venter’s team at the JCVI, which included the Nobel laureate
Ham Smith, had used powerful computers to design a bacterial cell, assembled the
components of that cell in a petrie dish, and got the cell to replicate as though it
was E. Coli (click here for the
Science paper). If you’re reading this
in the year 2050, ask yourself from the perspective of forty years ago how
amazing this development was. Up until 2010 the only thing us biotech folks had
really been able to do was take an existing bacterium and tinker with it using
the tools of genetic engineering to make a few therapeutically useful proteins.
The JCVI team had now made the big leap
forward and built an entire bacterium from scratch, having shown two years
previous to this that you could create an entire synthetic bacterial genome (click here). Self-replicating
synthetic bacterial cells are a big deal because when you can design entire
organisms, you can theoretically design them to make all sorts of things we
need in daily life, like fuel, food and clean water. In short, the arrival of synthetic
biology wasn’t just a medical breakthrough, it was an economic breakthrough.
As with any scientific field that has this kind of potential,
Venter and friends haven’t been the only ones doing synthetic biology. Another
serious player has been Intrexon (Nasdaq: XON), a biotech company from Germantown,
Md which did its IPO this year, raising US$184m. Clearly between 2010 and 2013
the word had gotten around regarding Venter’s giant leap because when Intrexon, which
went out at US$16 per share, started listed life on 8 August the stock finished
the day at US$24.73. At the current US$21.51 Intrexon is capitalised at just
over US$2bn. That may be considered a little high for a company that can’t
really say what its first product is going to be, but it does point to rising
awareness of the ‘bioindustrial revolution’ coming over the horizon. It also reflects
the halo effect of previous biomedical success. Intrexon’s major shareholder and
CEO is Randal Kirk, the world’s 613th richest person according to
this year’s Forbes billionaire’s list. His previous companies have been New
River Pharmaceutical (developer of the ADHD drug Vyvanse, sold to Shire for
$2.6 billion in 2007) and Clinical Data (developer the antidepressant Viibryd,
sold to Forest Laboratories for $1.2 billion in 2011). Kirk was worth US$2.4bn
when Forbes published its latest list. Intrexon made him, on paper, another
US$1.5bn richer two months ago.
What Randal Kirk has put together in Intrexon is a suite of
technologies to do synthetic biology at commercial scale. With Intrexon’s UltraVector
platform, you can use sophisticated bioinformatics-based tools to design multiple
synthetic genomes and put them inside cells. You can then pick out the cells
you particularly like for further development using Intrexon’s LEAP (Laser-Enabled
Analysis and Processing) technology. Probably the most interesting piece of
Intrexon know-how is a transcriptional regulation system called the RheoSwitch, so
called because, like a rheostat, the elements of this system allow the genome designer
to not only induce protein expression, but also to control the level and
timing of expression. It’s this sort of control that can make the difference
between success or failure in terms of the useful products a cell can be engineered to
produce.
Intrexon is commercialising its various technologies through
‘exclusive channel collaborations’, or ECCs, with companies looking to use
synthetic biology in new product development. There are a lot of these collaborations
in place and more are being added all the time. Elanco, the animal health division
of Eli Lilly, is a collaborator, as is Rentokil, the pest control business
owned by the major British business services company Rentokil Initial. However most of Intrexon’s collaborations are
with companies considerably lower in profile. The Boston-based Ziopharm Oncology (Nasdaq: ZIOP), which is using Intrexon technology in cancer drug
candidates, may be capped at US$302m. However Fibrocell Science (NYSE MKT: FCSC) of Exton, Pa., which wants to use Intrexon’s technology to treat a rare
blistering disorder called ‘recessive dystrophic epidermolysis bullosa’, is
only worth US$106m. Oragenics (NYSE MKT: OGEN), working on new antibiotics in
Tampa, Fl, sits at US$72m. And AquaBounty Technologies (AIM: ABTX), creator of
a new strain of salmon that grows twice as fast as conventional salmon, can
only manage £32m
(ie US$52m – the company is from Maynard, Ma. but the stock only trades in
London). Moreover none of the products
being worked on is anywhere near the market.
Don’t get me wrong. Intrexon’s technology still has the
potential for positive outcomes. Ziopharm is using it to deliver interleukin-12
(IL-12) directly to tumours. We’ve known for years that this cytokine is deadly
to cancer, but is too toxic to be delivered systemically at therapeutic doses (click here). Ziopharm
sidesteps this problem by putting the gene for IL-12 inside an adenovirus and
placing the gene under the control of an Intrexon-sourced Rheoswitch. After the
adenoviral vector has been delivered, the patient takes a pill which turns the
Rheoswitch on, causing a whole bunch of IL-12 to suddenly express inside cancer
cells. Pre-clinical data and Phase I clinical data on this cancer immunotherapy
have been encouraging and the product, called Ad-RTS-IL-12, is now in Phase II
in melanoma and breast cancer. Interestingly, Australia’s Mesoblast (ASX: MSB) is
now working with Ziopharm on a similar approach under a collaboration announced
yesterday. The thinking is that Mesoblast’s mesenchymal cells could also be
used to dump Rheoswitch-controlled payloads at the site of tumours. Apparently
the pre-clinical work here has gone well - in which case, chalk up yet another capability
for Mesoblast’s increasingly versatile suite of mesenchymal-lineage cells.
But to return to Intrexon. Favourable early data for collaborators
is one thing. A US$2bn market capitalisation for a concept play is another. I
would argue that investors are currently pricing Intrexon’s technologies at ~US$2bn
in part because of the perception that they are helping to solve pressing major
global problems like peak oil rather than just inventing a new drug or two. Here’s
how Intrexon puts it in its S-1 filing with the SEC from earlier this year: ‘At
present rates of global industrialization and population growth, food and
energy supplies and environmental and healthcare resources are becoming more
scarce and/or costly. We believe it is not a viable option for mankind to
continue on this path — new solutions will be necessary to preserve and
globally expand a high quality of life. We believe that synthetic biology is a
solution.’ In my opinion, when you talk big like that and are valued
accordingly you need to be in a truly high profile collaborations such as the
one between Exxon and the Venter-funded Synthetic Genomics. For a couple of
years after 2009 those two companies worked together on using synthetic biology
to make algae fuel at commercial scale. It didn’t work out, but it sure sounded
exciting at the time given what oil prices had done up until 2008. I expect
that if Intrexon came up with a similar collaboration in the energy area the
market reaction would be highly favourable.
That’s the trouble with breakthroughs like those Craig
Venter achieved in 2010. It’s a
reasonable bet that synthetic biology can transform our lives and work, and
that Intrexon can play a part in this bioindustrial revolution over time.
However like all great breakthroughs, the transformation will probably take
decades rather than months or years. Will investors buying the first notable synthetic
biology play on Nasdaq be able to wait that long?
Stuart Roberts, Australian biotechnology analyst, with global focus
+61 (0)447 247 909
Twitter @Biotech_buzz
About Stuart Roberts. I started as an equities analyst at the Sydney-based Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group (ASX: BFG) in 2008 and I continued at Bell Potter Securities until June 2013. I joined Baillieu Holst in October 2013. Over the last twelve years I have built a reputation as one of Australia's leading biotech analysts. Before joining Southern Cross Equities I wrote for The Intelligent Investor, probably the most readable investment publication in Australia. I have a Masters Degree in Finance from Finsia. My hobbies are jazz, cinema, US politics and reading patent applications filed by biotechnology and medical device companies.
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SIGA Technologies (Nasdaq: SIGA) - 30 September 2013
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Disclaimer. This is commentary, not investment research. If you buy the stock of any biotech company in Australia, the US or wherever you need to do your own homework, and I mean, do your own homework. I'm not responsible if you lose money.
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