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Intrexon's Genetically Engineered Mosquitoes (Finally) Have Data. What's Next?

Self-limiting mosquitoes being released in Piracicaba, Brazil. Image source: Intrexon.

Using genetically engineered mosquitoes as a tool to combat mosquito-borne diseases has faced one major critique to date: While scientists could definitively control wild populations of mosquitoes, there was never any evidence that those efforts had a direct impact on public health.

Well, that may have just changed. 

Oxitec, a subsidiary of engineered biology conglomerate Intrexon (NYSE: XON), recently demonstrated that cases of dengue dropped 91% year over year in an area of Piracicaba, Brazil, that welcomed releases of the company's self-limiting mosquitoes. The development is undoubtedly another piece of good news supporting wider adoption of the technology in Brazil and elsewhere, but it's important to realize what the recent findings mean and don't mean. Here's what investors should expect next.

Data, data, data

The results are from a pilot program between Oxitec and the city of Piracicaba that released self-limiting mosquitoes in the 5,000-resident Eldorado neighborhood from July 2015 to the end of June 2016, a period also known as the dengue year. In the dengue year prior to the pilot program, in 2014 and 2015, Eldorado recorded 133 cases of the disease. In the most recent dengue year that ended several weeks ago, Eldorado recorded just 12 cases of dengue. Given the population of 5,000, the incidence rate dropped from 2.66% in the year-ago period to just 0.24% in the most recent period. That's why everyone is excited. 

While the data were reported by the city's Epidemiologic Surveillance service, they are not part of an actual epidemiological study. This means there are limitations to the results. For instance, it's worth noting that cases of dengue fell by 52% across the entire city of Piracicaba, which boasts a population of 386,000 people. That hints that other factors -- increased spraying of insecticides, public education, and environmental fluctuations -- likely played at least some role in Eldorado's year-over-year drop. Nonetheless, a drop of 91% provides evidence that self-limiting mosquitoes could be a viable tool in controlling wild mosquito populations and, therefore, mosquito-borne diseases. The new technology also skirts the disadvantages of insecticides, including off-target effects on other organisms and the potential for mosquitoes to develop resistance. 

Expansion underway

An expansion of the pilot program, announced in May, is now underway. Oxitec's self-limiting mosquitoes will be released to cover an additional 10 neighborhoods, boosting the population covered by the technology platform to nearly 60,000 people in an area just under 5 square miles. The expanded coverage now represents 15.5% of the city's residents, compared to coverage of just 1.3% of residents in the pilot program. Furthermore, the expanded program will cover more neighborhoods closer to the city's center, which could extend benefits to those commuting through the treated neighborhoods and, in effect, cover more than 60,000 people. The impact of the technology will be measured by the year-over-year reduction in dengue incidence by summer 2017. 

The expansion in Piracicaba should also result in reportable revenue for Intrexon. As Oxitec CEO Hadyn Parry told me in a recent interview, the current contract should generate about $8 to $10 per person covered by the technology platform per year. In other words, once the current expansion project is fully deployed, Intrexon will be generating up to $600,000 in recurring annual revenue from it. The company is building a mosquito-hatching factory capable of covering the entire city's population, which represents up to $4 million in annual revenue potential.

That's not exactly an overnight explosion in revenue growth, sure, but as investors should be aware by now, it will take several years before Oxitec becomes a major force in Intrexon's top or bottom lines. If the companies and city continue to report favorable data with further decreases in cases of mosquito-borne disease for multiple consecutive dengue years, adoption of the technology elsewhere in Brazil will be expedited. However, because regulatory bodies in Brazil and the United States are independent, the data in Piracicaba should not have an effect on adoption in the United States.

What does it mean for investors?

A 91% drop in dengue cases year over year in the Eldorado neighborhood of Piracicaba is pretty big news for Intrexon and Oxitec. Importantly, Oxitec's report begins to chip away at a major critique of self-limiting mosquitoes: lack of data. Given that cases across the entire city fell by more than half in the same comparison period, there are likely other factors at play, but the importance and capabilities of the companies' tools in combating mosquito-borne diseases should become more bulletproof after multiple consecutive years of releases. That may not be what investors want to hear, but the long-term potential of the technology platform remains intact.

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Maxx Chatsko has no position in any stocks mentioned.

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