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Mizuho Initiates Coverage of Intrexon with Buy Rating

NEW YORK (GenomeWeb News) – Investment bank Mizuho Securities today initiated coverage of synthetic biology firm Intrexon with a Buy rating and a price target on the company's shares of $30.

Germantown, Md.-based Intrexon went public in August, raising $184 million in gross proceeds. Mizuho was co-manager on the IPO with Griffin Securities.

In a report, Mizuho analyst Peter Lawson noted Intrexon's strong management team, its diversified business model, and substantial market opportunities for the company.

Chairman and CEO Randal Kirk, for example, has built a successful track record, having been chairman and CEO of New River Pharmaceuticals, as well as founder and CEO of Third Security, an investment management fund, Lawson said. Kirk also was chairman of Clinical Data before it was bought by Forest Labs.

Additionally, COO Krish Krishnan served as CEO of Pinnacle Pharmaceuticals and as CFO and COO of New River Pharmaceuticals, Lawson said.

He also highlighted Intrexon's "unique business model that has multiple avenues of revenue and drivers of shareholder value." Technology access fees received at the start of each exclusive channel collaboration, or ECC, results in front end revenues, while earned cost recovery revenues cover R&D expenses in the ECC.

As the ECCs progress, Intrexon receives milestone payments, and royalty revenues are realized after the ECC partner commercializes the product. This, Lawson said, creates a recurring revenue source.

"Intrexon's partners take on the commercialization risk, while compensating Intrexon for development costs," he said. "Significant value creation can also manifest from equity interests that Intrexon may take in lieu of upfront payments, especially in smaller, more early stage partners."

In terms of market opportunities, synthetic biology is now approaching the point where technology can be used to create new genes, proteins, cells, "and even organisms that can be used in a range of applications in health, health, food, energy and the environment," Lawson said. "The effect creates a deep pipeline and multiple shots on goal for product development. Blockbuster products may also come in areas not yet realized."

Healthcare is the "most accessible, near-term market for Intrexon," and seven of the company's 10 active ECCs are in the health arena. "The applications are significant and highlight the potential breadth of Intrexon's platform," Lawson said, adding that in addition to human health, the firm's technology may be applicable in the animal health/veterinary market.

He cautioned, though, that Intrexon's technology is unproven and has yet to result in a commercial product. Intrexon's dependency on collaborations for revenues exposes it to certain risks, and in addition to the consequences resulting from partnership product failures, the "lack of a wide array of collaborations and/or products will lead to concentration risk."

Though Intrexon's business model frees it from commercialization-related activity to concentrate on its core R&D capabilities, a "poorly executed product launch could impair royalty generation and any equity stakes taken in the partner. Many of Intrexon's early partners have little to no commercial experience or track record," Lawson said.

He also noted potential competitive pressure, saying there are several firms that provide genetic engineering, DNA synthesis, manufacturing, and antibody R&D. These include DNA2.0, Origene's Blue Heron Biotech, Life Technologies, Eurofins MWG Operon, and Synthetic Genomics, though "we believe no single competitor offers Intrexon's 'one-stop-shop' experience," Lawson said.

In afternoon trading on the New York Stock Exchange, shares of Intrexon were up a fraction of 1 percent at $22.42.

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