Intrexon Corporation August 28, 2015

Griffin Securities Equity Research

Stock Symbol NYSE: XON

Current Price $42.59

12 mos. Target Price $65.00

10

Intrexon Corporation

August 28, 2015

Intrexon Corporation BUY

Company Update : Biotechnology

New Deals to Secure Environmental Technology and a Partner for Isobutanol Commercialization

An acquisition of Oxitec will expand Intrexon’s involvement

in the environment sector with a technology that cuts

pesticide use. Intrexon has offered to acquire this private

company for $160 million, paid evenly in stock and cash. The deal,

which will probably close in the near future, will garner expertise

in entomology and a portfolio of genetically modified insects to

address local infestations. The lead product, which consists of

genetically modified male mosquitos, is designed to reduce the

spread of dengue fever. Open field trials have been conducted in

the Cayman Islands, Malaysia, and Brazil.

Dominion Resources is exploring the commercial potential

of Intrexon's bioconversion technology under a new pact with

Intrexon Energy Partners. The partners are evaluating the merits

of commercial-scale plants converting natural gas to isobutanol

in the Marcellus and Utica Shale Basins. These geological

formations in the northeastern United States have accounted for

85% of the growth in domestic natural gas production since 2012

and they hold tremendous promise for the future. Dominion is an

ideal partner, in our view, as it will construct, own, operate, and

maintain the production facilities. Intrexon will need to achieve

development milestones prior to the initiation of commercialization

activities. We figure the key factor will be the yield of isobutanol

from a pilot plant that will be completed later this year

.

Operations continue to perform on cue. The June quarter

benefited from 46% higher collaboration revenues and from a

$27.5 million incremental contribution from Trans Ova Genetics.

Overall, revenues increased 3.8-fold on a year-to-year basis.

R&D expenditures rose 41%, while SG&A costs came in 54%

higher. The Company also reported cost of products/services that

contributed to roughly a doubling of operating expenses. Still, the

operating loss was pared by nearly 4% from a year ago. After

adjusting for non-cash expenses recognized in calculating GAAP

losses in the two June quarters, Intrexon had an adjusted EBITDA

of $0.49 per diluted share in the latest period, versus a use of

$0.11 a share a year ago.

Intrexon stock merits consideration for most portfolios. The

Company is at the forefront in developing synthetic biology

thanks to its unique technologies and the ability to expand via

acquisitions. Its mix of business endeavors is equally diversified

across five major sectors, each with the potential to generate

multiple sources of revenue.

We are maintaining our BUY rating and $65 price target.

Please Review Disclosures on Page 8 of This Report

INVESTOR CONSIDERATIONS

Intrexon should not to be mistaken for just another innovative company with a handful of projects, even though its

valuation suffered along with others in the industry. In fact, the Company is on the leading edge of the emerging

field of synthetic biology with a business-to-business model that ensures rapid deployment of its technologies across

multiple sectors, notably healthcare, food/agriculture, energy/chemicals, environment, and consumer products. In

all, Intrexon has entered into 32 collaborations with 25 different parties since signing its first in 2011. Today, 28

agreements remain active, including 27 exclusive channel collaborations (ECCs) and a research collaboration that

may evolve into an ECC. The number of projects should continue to grow, as Intrexon formed a collaboration in

June with Harvest Capital Strategies, which is an investment pool, to develop new products in its five areas of

interest. With funding from this agreement, the Company’s backlog of internal projects may give rise to as many as

10 start-up companies per year.

A brief look at the business portfolio identifies which sectors have the potential to drive the Company’s financial

performance in the near term. The addition of Trans Ova Genetics in August 2014 created a meaningful, new

revenue stream in the food/agriculture sector that should continue to grow in the years ahead. The February

acquisition of Okanagan Specialty Fruits brightened the sector’s prospects even more, with potential contributions

from Arctic® apples starting in 2017. There is also a “surprise factor” in the food area since an Intrexon subsidiary,

called AquaBounty, is awaiting regulatory approval of a salmon that grows more rapidly than Atlantic salmon.

Approval could come at any moment. The healthcare sector, which includes the largest number of ECCs, involves a

broad range of new therapies made possible only through genetic engineering for inherited conditions, inflammatory

diseases, cancer, dermatological disorders, and serious infections. We believe royalties from healthcare products will

begin in late 2017 or early 2018. The energy/chemical sector should complete the construction of its first pilot plant

for the conversion of natural gas to a higher-value chemical, isobutanol, later this year. Intrexon has already enlisted

Dominion Resources, which is a major player in the energy industry, to finance, build, and operate commercial-scale

plants utilizing its technology. We figure the first commercial facility may be operating toward the end of this

decade. The pending acquisition of Oxitec would expand the Company’s ability to address environmental needs

through technology that reduces the use of pesticides while protecting crops from insect damage and humanity from

insect-borne diseases.

This report discusses briefly the huge opportunity created by the Dominion agreement and outlines the attractive

technology underpinning the Oxitec deal. In addition, we review the June-quarter financial results and update our

estimates for the remainder of 2015. We will update our financial model to include Oxitec once the acquisition has

been consummated.

Intrexon stands apart from most companies as a leader in the emerging field of synthetic biology. Most of its

projects have been at least partly de-risked before they emerge from its labs and require only field, pilot plant, or

clinical testing to verify the commercial potential. But then the sheer number of projects and involvement of

commercial partners reduces the risk for the Company and its stockholders. As such, we believe XON shares merit

consideration as a core holding for most diversified portfolios. The recent decline in its share price only adds to its

appeal - this stock is rated BUY with a price target of $65.

THE IMPORTANCE OF THE DOMINION RESOURCES DEAL

Intrexon has chosen a unique approach to creating value in the energy/chemicals sector with synthetic biology.

Rather than follow others in attempting to convert cellulosic materials into ethanol, it has opted to utilize plentiful,

low-cost natural gas as its feedstock. As a result, its technology, which resides in genetically modified bacteria

called methanotrophs, may be employed wherever natural gas is available. The bacteria convert the single-carbon

methane into a four-carbon molecule called isobutanol, which is a higher-value chemical found in gasoline and is

used as a feedstock for synthesizing other chemicals.

Dominion Resources is a diversified energy company with electric generation and transmission operations and

natural gas collection, distribution, processing, and storage assets. Natural gas-fired plants account for 34.5% of the

company’s electric power generation capacity and the company operates one of the nation’s largest natural gas

storage systems with 928 billion cubic feet of capacity in Pennsylvania, West Virginia, and Ohio.

The agreement signed by the energy joint venture Intrexon Energy Partners secures an excellent partner in

Dominion for the commercialization of the natural gas-to-isobutanol technology, in our opinion. The energy giant

will construct, own, operate, and maintain bioconversion production facilities in the Marcellus and Utica Share

Basins. (As shown in Figure 1, the Marcellus and Utica geological formations overlap in most of the region, with the

Utica Basin located below the Marcellus.1) The bioconversion plants will probably be sited near Dominion’s natural

gas processing and storage facilities in the region to take advantage of both the enormous supply of natural gas and

the company’s existing infrastructure. (As shown in Figure 2, the Marcellus and Utica Shale Basins accounted for

85% of the growth in domestic natural gas production since 2012.2) We also note that Dominion has experience with

innovative power-generating technologies, including biomass, and that it has a marketing subsidiary.

Figure 1. The Utica and Marcellus Share Basins1

Commercialization of Intrexon’s technology will hinge on achieving certain unspecified milestones. We believe

these relate to the production of isobutanol at commercially viable yields by a pilot plant that should be completed

later this year and tested in 2016. The risk here seems low, since Intrexon believes that its bioconversion platform

will enable even small-scale plants to achieve profitability within the first year of production. Hence, we believe the

royalty stream from the natural gas-to-isobutanol project will commence in the 2018/2019 timeframe.

Figure 2. Change in Gas Output by Region Since 20122

1 Map obtained from www.oilindependents.org was created from data provided by the Energy Information Administration.

2 Marcellus, Utica provide 85% of U.S. shale gas production growth since start of 2012. Published in Today in Energy by the U.S. Energy

Information Agency, July 82, 2015.

Intrexon Corporation August 28, 2015

Griffin Securities Equity Research 3

OXITEC: ENVIRONMENTALLY FRIENDLY SOLUTIONS FOR AGRICULTURE &

HEALTH

The proposed acquisition of Oxitec will expand Intrexon’s involvement into the environmental sector in three areas,

public health, agriculture, and animal health. The private company, which was spun out of Britain’s Oxford

University, has modified various insects to abort harmful infestations without the use of pesticides. The company

has utilized targeted genetic modifications to create insects incapable of interfering with the wild population’s

propagation with no known environmental impact.

An alternative approach that involves the release of radiation-sterilized insects has failed for certain species because

the procedure limits the fitness of the insects to compete for mates. Nonetheless, when that method has been

employed successfully, the resulting reductions in pest populations have proven its effectiveness. Similar data have

been obtained in field studies of Oxitec’s advanced programs.

Figure 3 provides an overview of Oxitec’s R&D pipeline. To illustrate the beneficial effects of these products, we

provide a brief review of the three most advanced below.

Figure 3. Oxitec’s R&D Pipeline

· OX513A: The most advanced product is a genetically modified version of the fly Aedes aegypti

that can transmit several potentially deadly human viruses. Oxitec has modified male flies so that

their offspring are incapable of surviving past the late larva or pupae stage, thus reducing the local

mosquito population.3 (This technique is referred to as a Release of Insects carrying a Dominant

Lethal gene, or RIDL, and it is employed particularly in instances in which sterilization by

irradiation is ineffective.) The product, which is being developed to prevent dengue fever, has

already been field-tested in Cayman Islands, Malaysia, and Brazil with favorable results. (Dengue

fever is a serious, potentially lethal disease for which there are no specific drugs or licensed

vaccines available. Its incidence and severity have been increasing in tropical and sub-tropical

areas, since use of the pesticide DDT was terminated.) A recent study estimated the number of

apparent dengue infections worldwide to be 96 million in 2010.4

· OX4319L: Oxitec has employed a slightly different approach to combating another pest, the

diamondback moth, Plutella xylostella. (OX4319L is based on a female specific-RIDL

modification that eliminates females fathered by males carrying the lethal gene.) The targeted

insect is highly resistant to Bt plants (i.e., those expressing a natural pesticide derived from the

3 Carvalho, DO, et al. Mass production of genetically modified Aedes aegypti for field releases in Brazil. J Vis Exp (2014); 83: e3579.

4 Bhatt, S, et al. The global distribution and burden of dengue. Nature (2013); 496(7446): 504.

Intrexon Corporation August 28, 2015

Griffin Securities Equity Research 4

bacterium Bacillus thuringiensis), notably brassica crops (e.g., broccoli, cauliflower, kale, and

turnips). As a result, they cause an estimated $4 billion - $5 billion in crop damage and

management costs worldwide each year.5

· OX1138B: The sterile insect technique, in which insects are rendered infertile by radiation, has

proven useful in protecting cotton crops from an invasive species, the pink bollworm

Pectinophora gossypiella. Current use of this approach is not ideal however, as assessments of the

insect population caught in field traps yield equivocal results. The problem is that it is not always

possible to distinguish normal wild-type insects from those that were irradiated because a dye fed

to the insects prior to release may not be retained in sufficient quantity. OX1138B solves the

problem by incorporating a gene for a fluorescent marker that is expressed by the irradiated

insects. Field tests of these insects demonstrated that distinguishing between wild-type and

irradiated by fluorescence microscopy was 100% accurate based on genetic screening performed

in parallel.6 Despite the availability of various programs to eradicate the pink bollworm, it

continues to impose a sizable economic cost on cotton growers.

Overall, the pending acquisition of Oxitec will immediately enable Intrexon to participate in the development and

commercialization of environmentally friendly approaches to pest management for better health and food

production. The deal calls for Intrexon to pay $80 million in cash and another $80 million in common stock to

Oxitec investors. Given the enormous potential of just the three products we used to illustrate the merits of Oxitec’s

technologies and the results of field trials conducted to date, we believe the acquisition is attractive.

5 Zalucki, MP, et al. Estimating the economic cost of one of the world’s major insect pests, Plutella xylostella (Lepidoptera: Plutellidae): just how

long is a piece of string? J Econ Entomol (2012); 105(4): 1115.

6 Walters, M, et al. Field longevity of a fluorescent protein marker in an engineered strain of the pink bollworm, Pectinophora gossypiella

(Saunders). PLoS ONE (2012); 7(6): e38547.

Intrexon Corporation August 28, 2015

Griffin Securities Equity Research 5

FINANCIAL REVIEW

Intrexon’s June quarter was marked by a seasonal upturn in demand for Trans Ova Genetics services and products

and by a further increase in R&D collaboration revenue. As presented in the Quarterly Income Statements table

below, product and service revenue, which is largely attributable to Trans Ova, accounted for 83% of the $33.1

million of incremental revenue booked versus the year-earlier tally. Collaboration revenue, which jumped by 46%,

also contributed to a 3.8-fold increase at the top line.

Operating costs rose by 2.1 fold with the inclusion of Trans Ova for the full period and Okanagan Specialty Fruits

and ActoGenix for the first time. Cost of products and services totaled $18.3 million, or 66% of related revenues.

R&D costs were 41% higher than a year ago, while SG&A expenses were up 54%.

Among the various non-operating items was a $20.6 million non-cash charge for a change in the fair value of equity

securities that Intrexon holds in some of its collaborators. As a result, the Company reported a loss of $40.7 million

or $0.37 a share, versus a loss of $52.0 million or $0.53 a share in the June 2014 quarter. An alternative approach to

assessing performance is adjusted EBITDA, which measures cash flow. That method reveals a marked improvement

in Intrexon’s performance, with the latest quarter’s adjusted EBITDA showing $0.49 per diluted share of cash being

generated, versus the use of $0.11 per share a year ago.

Our estimates have been updated to take into consideration the recent revenue and expenditure trends, but they do

not include any contribution from the Dominion agreement since it is premature to do so and they do not reflect the

pending acquisition of Oxitec. We have, however, adjusted the estimated number of shares outstanding for the

recent equity financing that garnered $200 million for the Company. We will include Oxitec in our financial model

once the acquisition has closed.

QUARTERLY INCOME STATEMENTS

҂

(Fiscal years end December 31st.)

҂ Data are in thousands, except for per-share figures. Estimates are in italics.

Q1A Q2A Q3A Q4A Q1A Q2A Q3E Q4E

Revenues

Collaboration $ 7 ,837 $ 1 1,764 $ 1 2,656 $ 1 2,955 $ 1 4,735 $ 1 7,181 $ 18,000 $ 20,084

Product 9 4 ,115 7 ,357 8 ,933 1 4,266 11,000 9,801

Service 4 ,261 1 0,500 9 ,957 1 3,255 11,000 9,788

Other 1 7 1 4 1 65 2 80 2 24 1 89 - -

Total Revenues $ 7 ,854 $ 1 1,787 $ 2 1,197 $ 3 1,092 $ 3 3,849 $ 4 4,891 $ 40,000 $ 39,673

Operating expenses

Cost of products sold $ - $ 8 6 $ 4 ,224 $ 6 ,725 $ 8 ,675 $ 1 1,764 $ 10,000 $ 9,561

Cost of services 2 ,316 5 ,909 5 ,362 6 ,503 6,400 6,135

Research & development 1 2,091 1 4,401 1 4,851 1 7,640 7 9,307 2 0,381 22,000 23,312

SG&A 1 3,635 1 5,382 1 4,853 1 9,779 2 7,628 2 3,673 24,000 24,699

Total operating costs 2 5,726 2 9,869 3 6,244 5 0,053 1 20,972 6 2,321 62,400 63,707

Operating profit/(loss) $ (17,872) $ (18,082) $ (15,047) $ (18,961) $ (87,123) $ (17,430) $ (22,400) $ (24,034)

Other Income (Expense)

Unrealized increase (decrease) in fair

value of equity securities 2 1,922 (33,777) (37,089) 3 8,475 1 15,454 (20,609) (15,000) -

Realized gain on equity investments - - - - - - - -

Interest (expense) (39) (40) (230) (357) (343) (359) (350) (348)

Other 8 0 3 6 1 23 3 99 5 67 1 8 200 200

Total other income (expense) 2 1,963 (33,781) (37,196) 3 8,517 1 15,678 (20,950) (15,150) (148)

Equity in net loss of affiliate (536) (1,355) (1,619) (1,750) (1,956) (2,180) 1,900 2,000

Pretax profit/(loss) $ 3 ,555 $ (53,218) $ (53,862) $ 1 7,806 $ 2 6,599 $ (40,560) $ (35,650) $ (22,182)

Income taxes (306) 2 83 - (80) (795) (934) (1,000) (1,021)

Net profit/(loss) $ 3 ,249 $ (52,935) $ (53,862) $ 1 7,726 $ 2 5,804 $ (41,494) $ (36,650) $ (23,203)

8 66 8 92 1 ,137 8 99 1 ,293 8 31 750 700

Net profit/(loss) to common $ 4 ,115 $ (52,043) $ (52,725) $ 1 8,625 $ 2 7,097 $ (40,663) $ (35,900) $ (22,503)

Earnings/(loss) per share $ 0 .04 $ (0.54) $ (0.53) $ 0 .19 $ 0 .25 $ (0.37) $ (0.32) $ (0.20)

Shares outstanding 9 9,338 9 6,908 9 9,888 1 00,533 1 08,142 1 09,318 112,575 115,400

Net loss attributable to non-controlling interst

2014 2015

BALANCE SHEET

҂

(Fiscal years end December 31st.)

҂ Data are in thousands.

Note that the June 30, 2015 balance sheet does not reflect the equity financing that was completed on August 26th.

We figure the $200 million raised ensures that the Company has flexibility to consider acquisitions after purchasing

Oxitec and increase capital expenditures next year above the $15 million we estimate for 2015.

ASSETS 3/31/2015 12/31/2014

Current Assets

Cash & equivalents $ 181,476 $ 115,961

Accounts Receivable 27,079 29,264

Inventory 26,171 25,789

Other 4,073 3,759

Total Current Assets $ 238,799 $ 174,773

Long-term investments $ 9,049 $ 27,113

Equity securities 294,922 164,889

Property & equipment 38,015 38,000

Intangible assets 129,308 65,947

Goodwill 104,045 101,059

Investments in affiliates 3,024 3,220

Other 2,825 1,271

Total Assets $ 819,987 $ 576,272

LIABILITIES

Current Liabilities 3/31/2015 12/31/2014

Accounts payable $ 6,904 $ 6,267

Debt due 2,047 3,948

Deferred revenue 17,289 16,522

Accruals 15,101 13,467

Curr. defer. consideration 7,310 7,064

Related party payables 52 214

Total Current Liabilities $ 48,703 $ 47,482

Long-term debt $ 8,300 $ 8,694

Deferred consideration 13,406 13,421

Deferred revenue 93,998 96,687

Other 2,235 699

Total Long-Term Liabilities $ 117,939 $ 119,501

Shareholders Equity

Preferred Equity $ - $ -

Common Stock, par value - -

Additional Paid-In Capital 1,074,944 843,001

Accumulated Deficit (431,139) (458,236)

Accum. Comprehensive Loss (3,137) (4)

Total Shareholders Equity $ 640,668 $ 384,761

Non-controlling interest 12,677 24,528

Total liabilities & equity $ 819,987 $ 576,272

Griffin Securities Equity Research 10