Politicians Jeopardize Commercialization of Engineered Salmon

The path to commercialization for the first engineered salmon from AquaBounty Technologies is a little more difficult than simply getting authorization for marketing from the U.S. Food and Drug Administration. Even following approval, which is widely expected to occur sometime this year, the success of the AquAdvantage Salmon in the marketplace could be hampered by any number of factors, ranging from consumer rejection to state-by-state legislation. That could be bad news for synthetic biology company Intrexon (NYSE: XON  ) , the majority owner of AquaBounty Technologies, since the engineered salmon is by far the most developed product in the company's pipeline.

What is aquaculture?
Like it or not, aquaculture will be the only way the world can adequately meet rising demand for seafood and stem declines in captured wild fish. The aquaculture market produced over 75 million tons and was valued at $135 billion in 2012; it is expected to grow to 88 million tons and $195 billion by 2019. New production approaches, such as growing mollusks and fish in rice paddies simultaneously, are expected to drive growth, along with novel technologies such as genetic engineering.  

Fish production in millions of metric tons compiled from the Fish and Agriculture Organization of the United Nations. Source: Con-struct/Wikimedia Commons.

Engineered solutions hold a great deal of promise for making the future of food more efficient, nutritious, and sustainable -- and AquAdvantage Salmon are a great example. They grow twice as fast as wild Atlantic salmon, are sterile (meaning they cannot reproduce if they escape the enclosure), and differ by only a single gene (out of roughly 40,000 genes) and a few other genetic components that regulate expression. Growing more meat in the same amount of time will allow aquafarmers to generate more value more quickly -- a big selling point for Intrexon -- in addition to feeding the world's growing appetite for seafood.

Source: AquaBounty Technologies.

Despite the advantages, not everyone is thrilled with engineered salmon. Some of the main opponents are the ones with the most power: politicians.

What is happening?
Lawmakers in states with large aquaculture operations are sounding off on the potential dangers that Intrexon's fish could bring to their waters. State Rep. Cary Condotta of Washington filed legislation to prohibit the production of genetically engineered finfish and require them to be labeled when sent to supermarket shelves so they aren't confused with fish produced within the state's borders. Meanwhile, U.S. Sen. Mark Begich of Alaska has voiced his concerns to the FDA, saying the agency "has never approved anything of this nature, which is basically cloning, and from that perspective I don't think they're prepared to understand the potential long-term impacts."

While Begich is simply wrong in likening the addition of a single gene to "cloning", there are legitimate concerns that (1) engineered fish could escape and eradicate wild populations of fish, and (2) groups of consumers would reject all fish in the marketplace if an engineered variety were indistinguishable from traditional product. Indeed, escaped Atlantic salmon have threatened wild populations of Pacific salmon in the Pacific Northwest. Although politicians claim to be doing what's best for the industry, signs point to them causing more outrage than praise among aquafarmers.

The problem is the language of the laws popping up to stamp out engineered fish. For instance, Condotta's legislation defines genetic engineering much too vaguely and actually encompasses fish produced through novel breeding techniques that aren't transgenic. A quick fix was made with newly proposed legislation, which no longer includes language that prohibits transgenic fish production (already outlawed in Washington state), but the poorly worded labeling provision has remained unchanged. Fair or foul, similar bills that become law could jeopardize Intrexon's product.

Why does it matter?
AquAdvantage Salmon are the closest of any products in development at Intrexon to reaching the market, so unnecessary obstacles would further limit the company's ability to generate product revenue in the near term. The near-term opportunity is small (the first production facility can produce only 100 metric tons of salmon per year), but make no mistake about it: this is the beginning of a controversy with long-term consequences for Intrexon and AquaBounty. The pair is working on other engineered seafood species for aquaculture applications, which represent a massive growth opportunity in a fast-growing market if commercialized properly.

Laws that prohibit the production of engineered fish outright would simply not account for safeguards being implemented by Intrexon and its subsidiary. First, AquAdvantage Salmon are sterile and could not reproduce in the wild even if they did escape. Second, the first aquafarm growing the fish variety is located in the highlands of Panama, far inland from any wild populations of salmon.

Additionally, requiring the labeling of engineered fish (or crops) in supermarkets would be based in fear and ignorance, not science. No health or nutritional differences have been found between AquAdvantage Salmon and wild salmon after 18 years of safety and environmental impact studies conducted by academics, the company, and regulatory agencies. If laws are going to be written to influence the advancement of science, then perhaps they should take science into account when being drafted.

A silver lining?
Fortunately for investors, Intrexon could use the controversy brewing in traditional aquaculture states to its advantage. In an attempt to quell environmental concerns, it wouldn't be out of the question for Intrexon to only license its technology to inland aquafarms. And if Washington and Alaska want to ban engineered fish, there is a growing list of buyers in states eager to get into the aquaculture action. You may be surprised to learn that the industry is growing quickly in states with large farming operations -- and therefore large volumes of fish feed. For instance, Indiana, which is far from wild populations of salmon in the Pacific and Atlantic oceans, may be a perfect fit for large-scale facilities for growing salmon.

Yes, that Indiana. Source: Google Maps.

Foolish takeaway
Intrexon cannot control legislation that may eventually become law, but it could adopt a commercialization plan that relies heavily on states eager to expedite their entrance into the aquaculture market. Aside from the controversy surrounding the cultivation of engineered fish, an investment in Intrexon today would be based on long-term optimism. Investors would have to believe that the company's bulging early stage product portfolio -- spanning health care, energy, food, and environmental applications -- will have more successes than failures. I would sit on the sidelines until a clearer path to product revenue materializes, especially given the current market valuation of $1.8 billion and 2013 sales of just $24 million. However, the opportunities in aquaculture could be just the thing needed to make Intrexon investment-worthy.

Do salmon equal growth?
Aquaculture may not be familiar territory for investors, but it could present some amazing opportunities for investors in the future. Engineered aquaculture may face too many legal hurdles in the near-term, however. Luckily, David Gardner just recently captured his first 100-bagger without a single farmed fish-and he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


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  • Report this Comment On May 11, 2014, at 6:20 PM, TSIF wrote:

    Nicely done Maxx, I think there is a lot of confusion on what Intrexon does and the opportunities across multiple markets. It's getting branded by each press release for whatever that press release happens to be about.

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