Description
INTREXON CORP. XON
Guys,
Go long Inrexon (XON) on the $125mm IPO this week.
Idea : Long Intrexon, the current 800 lb gorilla in the emerging field of Synthetic Biology. Symbol XON. Pricing Wendesday 8/7 for Thursday 8/8. U/W: J.P. Morgan (JPM), Barclay's. Co-Manager : Griffin
I'm not going to have much to say in Q&A, as I am a layman in life science technology, but I am smart enough to follow people a lot smarter than myself. I will make some comments learned from investors in the company, the roadshow, and those with knowledge of R.J. Kirk. As I understand it, they boast pre-IPO investors that are value legends; we shall see. I have no affiliation with the underwriters or the process, but know executives at the principal's company. I do own pre-IPO shares purchased directly from the company in the last $125mm private round at a nominal discount to the proposed IPO pricing range.
If you have the relationship with the underwriters, I think you have an opportunity to make a profit on the IPO if you are so inclined, in what will hopefully turn out to be a long term winner. Lest you think that I am hyping an "IPO hottie", that is simply not the case. Surprisingly few folks have real knowledge of R.J. Kirk, the company, and the field of Synthetic Biology in particular.
Intrexon (XON) began their roadshow on 7/30.There may be VIC members who attended the roadshow in NYC on Wednesday. I have spoken to bulls and one bear who attended, and this one will at the least be fun to watch as their are some strong opinions. I am obviously in the company of the bulls.
Intrexon will price their $125mm offering at a range of $14-16. There has not been a lot of hoopla or press as they filed their S-1 under the JOBS Act, and it went effective approx. first of July. I recommend the IPO depending upon your relationship with u/w's JPM and Barclay's, and I recommend you hold the stock if after doing your own work you believe as I do that this company could be remarkable. It is my belief that the company doesn't have a lot of downside due to their proprietary technology in this emerging and important field of Synthetic Biology. The upside could be enormous if they execute their vision. BTW, there are a number of extremely smart life science investors that don't have even an inkling of the coming wave of Synthetic Biology; I know this having spoken to them. The trending though of search on Google for the term is enormous, and this will become more a topic of conversation in the months ahead. There are some good links on the field posted at the end of this write up.
To anyone inclined, I suggest watching the roadshow presentation. I've had some issues with the link, and if you should encounter the same, go to retailroadshow.com:
http://www.retailroadshow.com/sys/launch.asp?qv=7367278064903872&k=55289970635
R.J. Kirk : He is easy to research in the public domain, though is still not widely known in spite of his wealth and success. I find him remarkable. Some indisputable facts that should intrique you. Kirk rarely / never sells shares of his companies, unless he sells the entire company. He doesn't grant himself any fancy options packages like 99% of the executives in his position do, and he puts his money where his mouth is. He has invested hundred of millions of his own cash in Intrexon, and in fact, has indicated he will buy up to $30mm on the IPO. Further, it has been mentioned that his own BOD will participate in the IPO of up to $10mm...So insders will presumably account for up to 30+ % of the IPO. This to me first of all is a bet on R.J. Kirk and his excellent team ( One example : http://en.wikipedia.org/wiki/Samuel_Broder ). Also, please have a look at Intrexon's BOD. It is very strong. Steven Frank, a member of the board, and head of H.C. banking at JPM, remarked to someone that it was one of the strongest boards he had seen anywhere :
http://www.dna.com/company/board
I first became acquainted with Kirk and his organizatiohn as a seed investor in Halozyme (HALO). If you look at the history of his involvement there, all you will see is purchases of more shares. He is a true long term investor until there is an event for the entire company.
One of the foremost things here is the size of the potential market Intrexon addresses. It is almost endless. They have indentified applications in the following : Healthcare, Food, Energy and Chemicals, Environment. If Intrexon can meet any one application it should be worth in the billions. The smart money thinks there are hundreds of opportunities. In a nutshell : Lower cost food, fuel, and healthcare. I will cite an example further below.*
Intrexon is essentially in the business of industrializing the re-engineering of DNA. Changing genes to accomplish grand golas. Transgenes. A couple of antecdotes I have heard that might be helpful, and that helped me get me wee brain a bit around it are as follows. What Intrexon does is assembly line modified gene manufacturing. Fast, efficient, and scalable. People close to R.J would probably say that the rest of the world (pharma in this case) is still using technology dating back to 1971, and that Intrexon has invented the assembly line. I've been told that as we sit today, if Big Pharma wants to develop a transgene for an application, they might produce 8 examples in 8 months. Folks who know Intrexon claim that they can produce 4,000 transgenes for the application in 3 months, and that all 4k of these examples will be "better" than the 8 by Big Pharma. This stuff makes my head swim, but again, I'm relying on some brillant folks to explain what they say is a world beating advantage.
Intrexon has been hiding their progress from the scientific markets until just recently. What the world has not figured out is that the company has 2 million + gene "parts" applications, more than the rest of the world combined. And they have already automated building the transgenes and all of the simulation/ testing. They also have a unique technology, the Rheoswitch, which allows a person to take a pill or dose, and turn the gene on and off. In other words, they are the only company which can tightly control the modified DNA. The transgene is new software for the gene and the ability to turn it on and off with a pill is unique to Intrexon. Please see the roadshow.
*Real (ish) world example of Synthetic Biology being applied : You may have read about the genetically engineered salmon Intrexon bought into through AquaBounty ABTX LN. This company took a gene from a Chinook salmon which grows faster than a North Atlantic one, and added a gene from an eel which grows 12 months a year vs. the 6 month per year growth cycle of a North Atlantic one. As a result they can produce North Atlantic Salmon for about 1/2 the price in 1/2 the time. The FDA looks like they are going to finally approve it which could be a step toward helping world hunger. Intrexon will grow other gene modified proteins, and it is not a stretch to imagine this is a pretty big deal. This also assumes the proteins are never sold in the U.S. While the genetically modified (GMO) salmon was not developed by Intrexon, the potential market is in the billions.,and it proves out the power of Synthetic Biology. Intrexon can do what took years, and do it in months for a fraction of the cost. BTW, N.A. salmon is a $10B industry and is heavily aquaculture driven.
R.J. has structured Intrexon to be a royalty / licensing business. They won't simply sell their technology, they will license for upfront fees and significant and perpetual back-end economics.
Best for last? Intrexon expects to be cash flow positive in 2013. I was shocked to learn this to be honest, but it is out there if you speak to a represntative from one of the underwriters. In fact, in the roadshow presentation R.J. makes it very clear that they are trying to go forward without the need for multiple trips to the capital markets.
Projections which I ask you to verify with an undewriter:
2013
Revenue : $113mm CF 30.8mm
2014
Revenue : $195mm CF 66.8
...something like $500mm in revenues in '17.
Anyway, it is impressive (or scary depending upon your point of view) given the $16mm booked for 2012. To be fair, they also have something on the order of $60mm in deferred revenue. As one perhaps too clever bull pointed out, it is rare to buy a bleeding edge technology company with a clear lead in a emerging and large field with a nearly 5% FCF yield on out year 2014. Again, we shall see, but I am in.
Some of this is from deferred revenue, and some from signing agreements (ECC's) with companies. I would be disappointed to not see the one or two significant ECC's signed before year end.
Risks :
They sign no further ECC's, and have to sell off the technology.
R.J. gets hit by a truck.
Other resources :
“Intro to Synthetic Biology”: http://www.bbc.co.uk/news/science-environment-17511081
“Synthetic Biology Explained”: www.youtube.com/watch?v=rD5uNAMbDaQ
If you’re interested, Dan Rather Reports featured synthetic biology in an excellent segment called “The Cutting Edge”, which is now available through the iTunes store.
Here’s a link to the Dan Rather video: https://itunes.apple.com/us/tv-season/the-cutting-edge/id587456488?i=600151009&ign-mpt=uo%3D4
Google : Fidelity on Synthetic Biology
http://www.amazon.com/Regenesis-Synthetic-Biology-Reinvent-Ourselves/dp/0465021751/ref=sr_1_4?ie=UTF8&qid=1375660637&sr=8-4&keywords=synthetic+biology
I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst