Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Intrexon Jumped 58% in June

By Brian Orelli, PhD - Jul 9, 2019 at 4:44PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The biotech is getting into the cannabinoids business.

What happened

Shares of Intrexon (PGEN -5.18%) jumped 58% in June, according to data provided by S&P Global Market Intelligence, after the biotech announced a $100 million deal with Surterra Wellness, a privately held medical cannabis company that will use Intrexon's yeast fermentation technology to produce cannabinoids.

So what

The deal expands on a partnership between Intrexon and Surterra Wellness in which the companies are using Intrexon's plant propagation technology, which it calls Botticelli, to improve cannabis crop yield and quality.

Producing cannabinoids, the active ingredients in cannabis, in yeast instead of the plant has a lot of potential advantages, including lower cost and improved quality control. And it's substantially easier to genetically manipulate yeast to produce rare cannabinoids in large quantities. Intrexon has a goal of getting the cost of goods to produce pure cannabinoids below $1,000 per kilogram.

Through the deal, Intrexon gets $25 million as a technology access fee, including $10 million in up-front cash and $15 million in Surterra common shares. Surterra will also pay approximately $20 million for research and development expenses over the next five years. The rest of the $100 million will come from undisclosed developmental milestones on each cannabinoid developed as well as royalties on the ones that are commercialized.

Balance sheet with pen and magnifying glass.

Image source: Getty Images.

Now what

The deal with Surterra will help Intrexon fund its internal pipeline of therapeutics, but the company really needs to do another deal or two to help build its capital runway, which stood at $181.6 million at the end of the first quarter. Unfortunately, development deals like this are typically back end-loaded without much up-front cash. Investors should be looking for a licensing deal for a later-stage clinical asset or two -- or perhaps selling off a division -- which would have a larger impact on the balance sheet.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Precigen, Inc. Stock Quote
Precigen, Inc.
PGEN
$1.28 (-5.18%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.