Another quarter, another record level of revenue. The growth engine remains red hot at synthetic biology pioneer Intrexon (XON 2.58%), with no end in sight. The company's core technology platforms continue to generate value across a diverse range of sectors, including healthcare, food, energy, public health, and more.
In addition to continuing the construction of a hockey stick, Intrexon continued its merger and acquisition activity by agreeing to pay $160 million for biological insect control company Oxitec. It also received a $115 million payment from Merck KGaA (the German company, not the same as Merck) for starting the collaboration to develop novel chimeric antigen receptor T-cell, or CAR-T), cancer therapies, although half goes to partner Ziopharm Oncology.
It was a busy quarter, so let's review the important details.
By the numbers
You can view the press release for more detailed (but unaudited) financial results, but the numbers I believe are important are summarized here:
|
Financial Metric |
Second Quarter 2015 |
Second Quarter 2014 |
% Change |
|---|---|---|---|
|
Collaboration and Licensing Revenue |
$17.2 million |
$11.8 million |
45.8% |
|
Product Revenue |
$14.3 million |
$0.009 million |
-- |
|
Service Revenue |
$13.3 million |
$0 |
-- |
|
Total Revenue |
$44.9 million |
$11.8 million |
280% |
|
Operating Expenses |
$63.3 million |
$29.9 million |
112% |
|
Operating Loss |
($18.4 million) |
($18.1 million) |
1.9% |
Source: Intrexon press release.
The bulk of the year-over-year revenue growth came from new operations -- namely, the arrival of product revenue and service revenue. Nearly 73% of product revenue and 87% of service revenue were derived from the company's bovine reproductive technology platform, called Trans Ova, which was the top contributor in 2014, too. The platform appears to be on pace to generate $100 million in total revenue for Intrexon this year.
And don't forget: those new revenue streams have expenses associated with them, which explains the 112% year-over-year increase in operating expenses. The good news is that product revenue and service revenue achieved gross margins of 17.5% and 51%, respectively, meaning the growth is creating financial value. Investors will also be comforted to see that Intrexon's operating loss remained relatively flat, growing just 1.9%. In fact, the company has maintained a quarterly operating loss of roughly $18 million for the past eight quarters now, excluding an unusual expense incurred during the first quarter of 2015.
CAR-T update
The CAR-T alliance assembled by Intrexon -- which includes Merck KGaA, Ziopharm, and MD Anderson -- officially started in the second quarter. The first two targets of interest were selected and Intrexon began R&D work on the programs, which triggered a payment of $115 million from Merck KGaA. Intrexon will retain half, or $57.5 million, and pay the rest to Ziopharm.
Putting the growth into context
Intrexon's quarterly revenue growth is absolutely stunning:
Source: SEC filings, Intrexon press releases, compiled by author.
The top-line growth has been met with an increase in operating expenses, too, but as I mentioned, the company's operating loss has remained relatively flat.
**Adjusted to exclude one-time $59.5 million payment, in common stock, to MD Anderson. Sources: SEC filings, Intrexon press releases. Compiled by author.
While new business will always be around the corner for Intrexon, it's possible that growth slows a bit in 2016. Why? This year product revenue and service revenue is growing from essentially non-existent levels in 2014. The larger the numbers (which are greater than zero in 2015), the more difficult it may be to grow in the future. Then again, given the company's heavy reliance on a single business unit (Trans Ova), the inevitable diversification of revenue in the future could allow growth to actually accelerate. Wrap your head around that.
A monster acquisition
Earlier in the day, Intrexon announced that it had entered into a $160 million agreement to acquire Oxitec, which develops biological insect control solutions for applications in public health, agricultural protection, and more. Oxitec is perhaps best known for conducting public health trials in Brazil, Panama, Grand Cayman, and Malaysia that control mosquito-borne diseases such as dengue and malaria by controlling mosquito populations. It's the same basic idea behind insecticide spraying and marsh removal techniques, but the company's approach doesn't affect the surrounding environment.
No insecticides need to be sprayed. No marshes need to be removed. And by investing in disease prevention, local governments can avoid costly public health campaigns dedicated to disease treatment. The technology isn't limited to less developed nations, either. Officials in Florida are ready to use the mosquitos to avoid insecticide spraying in residential areas.
Oxitec is taking the same self-limiting genetic approach to agricultural pests, which could protect crops without the need for spraying insecticides. That would probably be the real "moneymaker" application in the future.
What does it mean for investors?
There's no denying the awesome growth happening at Intrexon. While the company may appear to have a frothy valuation, the long-term opportunities being executed upon right now greatly exceed the current market cap. And as the Oxitec acquisition demonstrates, management isn't afraid to pounce to acquire leaders within their fields to grow the company's business -- and take it in new and previously unaccounted for directions. No one knows exactly what will happen next, but the growth will surely continue.
Even though it won't generate meaningful revenue in the near term, Intrexon's acquisition of Oxitec tips the scale for me: I would consider the company's stock a long-term buy-and-hold investment even at current prices. Just remember to adopt a long-term mind-set and to not get emotional about the inevitable volatility. Big pops may not be a reason to be excited, and big drops may not be a reason to be upset.
