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Election Day Has Big Implications for Intrexon

Image source: Oxitec.

On Tuesday, ballots in the Florida Keys will include the question of whether or not to release genetically modified mosquitoes there that could control the spread of mosquito-borne diseases such as Zika virus and yellow fever.

The two non-binding referendums will help to set the course for engineered biology conglomerate Intrexon (NYSE: XON) and its subsidiary Oxitec, determining whether or not they gain approval and can launch their innovative tool in Florida. The vote has big implications for the company, investors, and public health.

The technology

Similar to a presidential campaign, Intrexon and Oxitec have been executing a carefully planned ground game in Florida in recent years: working closely with local government, answering questions at town hall meetings, and taking their message directly to the public to explain the benefits of their approach to controlling wild mosquito populations. Their self-limiting mosquito technology works relatively simply. Mosquitoes that have been genetically modified with a lethal gene are released. They mate with wild mosquitoes, and produce offspring bearing the lethal gene, which ensures that the next generation of mosquitoes don't survive to adulthood (and that the gene doesn't persist in the wild). And since only non-biting male mosquitoes are released, the technology has earned the nickname the "Friendly Mosquito."

It's a markedly better approach than the standard control methods used today, which mostly rely on spraying insecticides over wide areas. While the status quo approach kills mosquitoes, it also kills insects that aren't being targeted, including beneficial ones such as honeybees, and it can harm other organisms in the environment. Insecticides are also not very efficient, since they need to be applied repeatedly to control mosquito populations.

Intrexon's self-limiting technology, on the other hand, only targets one specific species of mosquito -- Aedes aegpyti, which lives throughout the United States and is responsible for spreading Zika and other diseases -- without affecting other organisms. It can also be used to control wild populations indefinitely with an efficiency that improves over time: As wild populations decline, fewer genetically modified mosquitoes need to be released to keep them in check.

Habitat range of Aedes aegypti mosquitoes in the United States. Image source: CDC.

The companies are already protecting up to 60,000 residents in the city of Piracicaba, Brazil (more if you factor in individuals passing through those regions of the city on their daily commute). A factory opened near the city last month will have the capacity to produce enough mosquitoes to protect all 1.4 million people in the metropolitan area, and perhaps up to double that amount. That represents a sizable product revenue stream for Intrexon, especially at the contracted rate of $8 to $10 in revenue per protected individual. 

Why does the referendum matter?

This genetically modified mosquito technology still needs to obtain regulatory approval in the United States. There are a few moving parts within the approval process, which has several parallels to a drug trial for a pharmaceutical company. (The mosquitoes will in fact be regulated as an animal drug.)

First, the Food and Drug Administration needed to determine whether the genetically engineered mosquitoes are safe to use, much like a phase 1 clinical trial tests a pharmaceutical drug candidate for safety. Since the mosquitoes will be released into the environment, this requirement considers the potential effects on humans and natural ecosystems. This step was completed when the FDA finalized its finding that self-limiting insects will have no significant impact on the environment.

Next, Intrexon and Oxitec need to conduct open field trials to determine the efficacy of releasing their self-limiting mosquitoes to control wild mosquito populations. The field trials, which will take four to six months to complete, are akin to a phase 2 and phase 3 trial for a human drug. The data collected from these studies will be compared to the companies' claims and sent to the FDA. Potential approval would apply at the national level, although individual states could decide to require additional testing.

There's just one thing: The field trials need the approval of the local government to proceed. But rather than make a unilateral decision on the matter, the Florida Keys Mosquito Control Board -- one of the largest and most active in the world -- is allowing residents in Key Haven and Monroe County to weigh in with a non-binding referendum on Nov. 8. Thus, the importance of Election Day to Intrexon and its investors. The longer the process of getting approval drags out in the United States, the longer it will take to begin generating revenue in places desperate for more effective mosquito control tools.

What does it mean for investors?

Investors will note that the vote will take place as part of a non-binding referendum. That means voters could reject the measure and the local government could still decide to allow Intrexon and Oxitec to proceed with open field trials. But I suspect that extra procedures would be added in that scenario, which would further delay the regulatory and approval processes. Without a positive outcome in the referendum, investors might not see the technology platform begin generating revenue in North America until mid- to late-2018 or later.

The simple fact is that the easiest path forward for bringing the mosquito-control technology to the market is for residents in the Florida Keys to approve the measure. If that occurs, then Intrexon and Oxitec could obtain FDA approval by mid-2017. That would set the stage for revenue generation in a large new market, and could forever change the way we combat disease-carrying mosquitoes. It's one more reason to keep your eyes on the battleground state of Florida.

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Maxx Chatsko has no position in any stocks mentioned.

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