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Why Investors are Excited About Intrexon and Ziopharm's New Deal

The news out of the J.P. Morgan Healthcare Conference keeps on coming for biotech investors. Intrexon (NYSE:XON) and its oncology partner Ziopharm (NASDAQ:ZIOP) announced their arrival into the biopharmaceutical field's latest craze: chimeric antigen receptor T cell, or CAR-T, therapies. The duo has entered into an exclusive deal with The University of Texas MD Anderson Cancer Center to license a proprietary approach to the hot new immunotherapy method, which the trio is hoping could result in manufacturing, efficacy, and safety benefits over more widely used approaches. Shares of both companies are up considerably higher today on the news, so let's explore what the deal really means for investors.

What are the highlights of the deal?
Intrexon and Ziopharm will get exclusive rights to a novel CAR-T approach for treating various types of cancers. Both companies handed MD Anderson $7.5 million of common stock to close the deal in time for an announcement at the J.P. Morgan Healthcare Conference. But each will print an additional $50 million in new shares to give to MD Anderson within the next 60 days, which brings the total equity transfer to $115 million.

The deal reflects the reality that both companies are a bit late to the CAR-T party, but there's more. Ziopharm has agreed to fund research activities at MD Anderson to the tune of between $15 million and $20 million per year for the next three years. The development stage biotech had $46 million at the end of September and burns roughly $7 million per quarter, meaning Ziopharm will need to raise additional capital in 2015 and beyond to fulfill its obligations.

It will likely get help from Intrexon, which owned 16% of the company at the end of September, essentially making Ziopharm a partially owned subsidiary. Intrexon will see its ownership stake decline after the dilution from the MD Anderson equity offer, but will also likely be a leading participant of future fundraising rounds of Ziopharm.

The new CAR-T trio expects to launch up to five clinical trials in 2015 and develop manufacturing programs in 2016. And despite the large upfront nature of the deal, the technology platforms wielded by Intrexon and Ziopharm are a perfect fit for the new CAR-T approach -- although that alone doesn't mean it will prove safe or effective.

What's so great about CAR-T?
The immunotherapy approach collects a cancer patient's T cells, a potent type of immune cell, and genetically engineers them to produce special surface proteins called CARs, which recognize specific proteins on the surface of cancer tumor cells. Researchers grow the engineered cells to high concentrations and inject them back into a patient's body. In other words, CARs allow T cells to find cancer more selectively while limiting the damage to a patient's healthy cells...