What happened
Shares of Intrexon (XON 5.91%) rose 11.6% as of 3:29 p.m. EDT on Tuesday. The big jump resulted from the company's announcement of a $100 million deal with privately held medical cannabis company Surterra Wellness to produce cannabinoids using Intrexon's proprietary yeast fermentation technology.
So what
This is the second deal between Intrexon and Surterra. In March, the two companies announced an agreement by which Surterra will use Intrexon's Botticelli next-generation plant propagation technology to improve cannabis crop yield and quality.
Image source: Getty Images.
Investors applauded Intrexon's latest move into serving the cannabis market. Intrexon CEO Randal Kirk stated that "few cannabis companies have the ability to target and produce rare cannabinoids and explore their benefit at a meaningful scale." He's right. Extracting rare cannabinoids from cannabis plants is time-consuming and costly. Intrexon's yeast fermentation technology could change the dynamics in producing high-quality cannabinoids.
Thanks in part to its deals with Surterra, Intrexon has bounced back from a nosedive in March. The company reported dismal fourth-quarter results on the last day of February, which raised questions about its ability to remain a going concern.
While the latest agreement with Surterra has a big amount associated with it, don't look for Intrexon to see a lot of cash soon. Surterra will pay only $10 million upfront plus issue $15 million in its shares to Intrexon. Over the next five years, Intrexon expects to receive around $20 million in reimbursement for research and development expenses. The rest of the $100 million will come from development milestones and royalties as rare cannabinoids are commercialized.
Now what
Perhaps the most important thing to watch with Intrexon now is the company's efforts to finance its operations on an ongoing basis. Intrexon had cash, cash equivalents, and marketable securities of $181.6 million at the end of March, but the company is losing over $60 million each quarter.
