Image source: Micolo J/Flickr.
What product portfolio would make you more excited: one containing next-generation oncology drugs, or one selling technologies and services helping ranchers breed bigger, stronger, and more productive cattle?
Yeah, that's what I thought.
But don't mistake a low level of excitement for lack of opportunity. While synthetic biology pioneer Intrexon (XON +10.84%) has seen its stock soar over 40% this year, thanks in no small part to headlines touting the long-term potential of its biology engineering platform to make a big splash in healthcare applications, last year the company generated 85% of its product and service revenue from bovine reproductive technologies offerings.
You may be quick to point out that total product and service revenue registered just $26.3 million in 2014, but the growth of Intrexon's platform is ramping steeply. When asked about the potential growth in the year ahead for certain offerings RJ Kirk, chairman and CEO of the organism company, responded by saying that bovine reproductive technologies "had very, very good growth in 2014." He continued: "And on the trend line that they are on, I shall not be surprised if they alone account for $100 million in revenues."
That would easily put Intrexon ahead of other publicly traded companies leveraging synthetic biology tools, such as industrial biotechs Solazyme and Amyris. Then again, Intrexon business strategy is a bit different, the balance sheet much cleaner, the management team savvier, and the immediate revenue potential higher. With that in mind, let's take a closer look into the offerings that could reel in $100 million in revenue in 2015.
What are bovine reproductive technologies?
In August, Intrexon acquired Trans Ova, the leading supplier of bovine reproductive technologies in the United States. The company, founded in 1980, offers products and services to cattle breeders across the nation. It may not seem very important, but cattle breeding is big business.
For instance, let's say a rancher owns an elite cow; "elite" meaning it possesses superior genetics, which can be demonstrated by its larger size, resistance to disease, increased successful breeding outcomes, and the like. The more elite animals you own, the lower your costs and the higher the value of your stock. Therefore, ranchers looking to maximize value will be keen to breed elite animals to the fullest to maximize their value down through generations, which has always been the case. The only difference is that, today, genetic tools offer the ability to increase the success of such efforts.
Trans Ova has received a significant boost from technological advancements in recent years. A quick look at the platform's offerings demonstrate the increasing reliance on genomics and biological technologies.
|
Product or Service |
Value Proposition |
|---|---|
|
Embryo transfer |
Data-driven services allow more offspring to be produced from an elite cow. Owners of elite animals can even sell elite embryos to other ranchers. |
|
In vitro fertilization |
Another key tool in cattle breeding, IVF allows elite cattle to maximize offspring production. |
|
Gender selection |
Ranchers can select whether to select male or female embryos. This is critical, considering the different roles cows, bulls, steers, and heifers play in the market. |
|
Genetic preservation and cloning |
Tissue samples from elite animals can be preserved and used to produce an identical genetic twin or clone. |
Source: Trans Ova.
There are other companies that provide similar services to those described in the table, but Trans Ova may now have a leg up on the competition thanks to help from Intrexon's platform. But what makes Intrexon interested in the market in the first place?
Why Intrexon cares about cattle breeding (or maybe just Trans Ova)
Trans Ova has been around for 35 years, so what makes it possible to rapidly ramp up revenue now? An increased focus on technology -- specifically, genetic tools. Intrexon is interested not because Trans Ova uses the tools of synthetic biology (it doesn't), but because of the potential when it does. There is certainly plenty of gasoline on the ground at the moment.
Image source: Viagen.
In 2008, the U.S. Department of Agriculture released its final decision on cloned livestock, stating that after years of study, cloned livestock were just as safe for human consumption as food produced from traditional livestock (although, at the time, the agency had no idea whether cloned livestock were in the food supply). In 2009, the cow became the first livestock animal to have its genome fully sequenced and mapped.
Intrexon has been mum on the details, stating only in SEC filings that it "intends to build upon Trans Ova's current platform with new capabilities with a goal of achieving higher levels of delivered value to dairy and beef cattle producers," but several dots can be easily connected.
A 50/50 joint venture with OvaScience, called OvaXon, is developing technologies to prevent diseases from being inherited in newborn humans and animals. Eliminating diseases from cattle embryos would probably encounter far fewer regulatory hurdles than applying similar technologies to human IVF treatments. Not surprisingly, it would also cement Trans Ova's leadership position in the industry.
Additionally, Trans Ova acquired Viagen in late 2013 to gain access to its cloning technologies, which can be applied to horses, pigs, cows, and even pets. Intrexon has made a handful of acquisitions to be a first mover in new fields, no matter how seemingly off the wall they appear at first. Pet cloning services could be one of them.
What to expect in 2015?
Much of the near-term and long-term growth potential of Trans Ova is no doubt aided by having access to Intrexon's capital, biological expertise, and strategic brain trust. It's too soon to say for sure how much 2015 revenue will be driven by technological advancements such as cloning and genetic preservation, but then again, perhaps that won't matter much to investors if the $100 million watermark is reached.
