Biotechnology is a notorious minefield for investors. For every successful drug that survives the approval process, dozens more simply flame out. Millions of dollars of capital evaporate every time a clinical trial fails to produce positive results.
Yet a select group of biotech visionaries manage to strike it big -- time and again. They have a knack for spotting biotechnologies that ultimately prove their mettle through the Food and Drug Administration's rigorous process. And few have shown the gift of biotech insights like Randal J. Kirk.
Kirk has built his fortune by focusing on drugs that have blockbuster potential. And he's shown the patience to stick with them -- for years, if needed -- until his vision is realized. The payoff: He netted a $1.2 billion profit in 2007 when Shire (Nasdaq: SHPG) acquired New River Pharmaceuticals for $2.6 billion. New River had developed Vyvanse, a key drug in the treatment of attention deficit hyperactivity disorder (ADHD).
Four years later, Kirk struck gold again as Forest Labs (NYSE: FRX) paid him $600 million for his majority stake in Clinical Data, which had developed Viibryd, an anti-depressant drug that hit the market in 2011.
Since then, Kirk has remained off the radar. Sure he's been a major shareholder and director of small biotech firms such as Ziopharm Oncology (Nasdaq: ZIOP), Fibrocell Science (AMEX: FCSC), Oragenics (AMEX: OGEN), Halozyme Therapeutics (Nasdaq: HALO), and Synthetic Biologics (NYSE: SYN). His name routinely pops up on insider buying lists associated with these companies. But his real passion is for a company that's he's been nurturing for half a decade and recently took public in an initial public offering (IPO).
That company, Intrexon (NYSE: XON), has been developing a set of tools that enable scientists to step inside the human gene and alter its basic structure. The company isn't concerned about coming up with a blockbuster drug. It wants to provide the tools for other biotech firms to make major breakthroughs. So what exactly is Intrexon looking to accomplish? The company is in the field of synthetic biology, which alters the core mechanisms of action taking place inside cell walls.
Make no mistake, this is an approach that will take time to pay off. Intrexon must sign partnerships that promise upfront licensing fees along with product-based royalties. In that respect, Intrexon is starting to gain steam:
-- In October 2012, Intrexon inked a deal with Fibrocell to supply the UltraVector platform to Fibrocell's dermatology and aesthetics products.
-- In May 2013, Soligenix (OTC: SGNX) licensed Intrexon's UltraVector technology to help develop drugs to treat melioidosis, an inflammatory disease that is the third-leading cause of death in Asia after HIV and tuberculosis.
-- On Oct. 1, Intrexon inked a deal with India's Sun Pharma to target cell-based approaches to combat ocular diseases that lead to partial or total blindness.
-- On the same day, Intrexon also announced a collaboration with Oragenics to develop microbes that will target oral and esophageal diseases.
-- And just this week, on Oct. 23, Intrexon and Ziopharm announced an extension of their ongoing collaboration to develop drugs that alter the basic functioning of cancer cells.
Intrexon is also spending heavily to advance the core DNA manipulation technology. For example, it has been advancing a technique to alter DNA in vitro, which holds the promise of eliminating birth defects and diseases while fetuses are still in the womb.
Intrexon has also been pursuing techniques that might one day help manipulate hydrocarbons, on a cellular level, to produce higher fuel content. On top of all this, Intrexon is also identifying opportunities to develop heartier and more nutritious crops, fruits and vegetables that are also more disease resistant.
But investors need to have a long-term outlook with this company. In the near-term, few of these developments are likely to have a huge impact on Intrexon's income statement. Wall Street analysts just picked up coverage of the recent IPO, and frankly, their near-term views seem too aggressive. Expectations of $75 million in revenue this year and $145 million in revenue next year are overly optimistic.
That may explain why shares have cooled off from the initial post-IPO surge. Look for analysts to lower their revenue estimates when third-quarter results are released in a few weeks.
Still, this is a business model that has revolutionary potential. And in light of Randal Kirk's track record in the biotech industry, investors with multi-year investing horizons may reap handsome rewards.
Risks to Consider: With a market value of nearly $2 billion, this stock is no bargain in the context of near-term results. Moreover, Kirk has a history of taking several years to unlock the value of his companies, so patience will be required.
Action To Take --> Shares could dip on the release of third-quarter results as analysts move to lower near-term revenue forecasts, so this is a stock to research now, and prep to buy when the numbers have been released and digested.