What Zika Virus in Florida Means (and Doesn't Mean) for Intrexon

By Markets Fool.com

Image source: Oxitec.

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Experts predicted that Zika virus would eventually make its way to the continental United States, which boasts considerable populations of the Aedes aegypti mosquito that spreads the disease. It didn't take long for the prediction to come true. Last month, the first case of Zika virus confirmed to be transmitted by local mosquitoes was reported in Miami-Dade County, Florida. Today the total number of confirmed cases stands at 33, although, since most individuals who contract Zika virus won't express symptoms, the actual total is surely higher.

At first glance, the encroachment of Zika-virus-spreading mosquitoes in the Lower 48 presents an opportunity for Intrexon (NYSE: XON), the engineered biology conglomerate that acquired the self-limiting insect platform of Oxitec, which is jumping through regulatory hurdles seeking approval for its novel vector-control technology.

While the technology represents a low-impact approach to controlling wild mosquito populations, the growing problem in Florida actually changes very little in the near or medium term for the company and investors. The long-term potential is more intriguing -- and complex factors could change the timeline and direction of the company's footprint in the United States.

What this news doesn't mean

Despite recent events, Intrexon will not generate revenue from Oxitec's platform in the United States in 2016. That may sound surprising. After all, the U.S. Food and Drug Administration recently published its finding(link opens in a PDF) that the company's self-limiting mosquitoes are "not expected to cause any significant adverse impacts on the environment or human and non-target animal health beyond those caused by wild-type mosquitoes."

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Yet while some media outlets reported that the FDA had approved Oxitec's self-limiting mosquitoes, that wasn't what actually happened. The ruling simply cleared the way for the company to conduct a field trial in the Florida Keys. Before that happens, Oxitec must receive approval from local officials and residents -- and that just became a bit more complicated.

Estimated range of Aedes Aegypti. Image source: U.S. Centers for Disease Control.

Rather than allow the trials to begin immediately, the Florida Keys Mosquito Control District -- one of the top mosquito-control agencies in the world -- put the decision on a November ballot as a nonbinding referendum. That alone jeopardizes the chances for Oxitec to deploy its technology on American soil in 2016.

Let's assume the field trial is approved. At completion, Oxitec will present data to the FDA, which will compare it to the company's claims. If everything holds up, the FDA will approve the release of self-limiting mosquitoes as an animal drug. Most states should adopt the ruling and, if they need to, could deploy the technology to control mosquito populations. It's important to mention that the field trial in the Florida Keys is more of a regulatory formality; data from multiple field trials conducted across the globe suggest that Oxitec will gain FDA approval eventually. It just has to jump through a few more hoops.

What thjs news does mean

Unfortunately for Intrexon investors, the Florida news doesn't mean much. The decision to put field trials on the November ballot makes the development and deployment timeline a bit murkier than before. From start to finish, the field trial will take four to six months to complete. Luckily (or not), the Florida Keys is home to mosquitoes year-round, which means the arrival of winter won't stop the trial. A timeline representing an optimistic scenario might look something like this:

    • December 2016 or January 2017: Oxitec begins field trial in Florida Keys.
  • March or April 2017: The earliest Oxitec could have data.
  • April or May 2017: The earliest the FDA could make a decision about approving self-limiting mosquitoes as an animal drug. (The agency isn't exactly known for making quick decisions.)

In other words, only under the most optimistic scenario would states have the ability to deploy Oxitec's self-limiting mosquitoes in time for next year's mosquito season. And that doesn't account for the infrastructure required to hatch larvae and deploy mosquitoes -- investments Intrexon needs to make ahead of time. Will it do so without regulatory certainty? Additionally, given local opposition in the Florida Keys, public objections may stall deployments even after approval.

Of course, that's what investors can expect under normal conditions. If Zika virus spreads more quickly or in unpredictable ways -- public health officials worry that Zika could arrive in Louisiana after historic flooding there, while hurricane season could create favorable mosquito conditions across a much broader geographic footprint -- then regulators could permit Oxitec to deploy its technology under emergency use.

Emergency use is now a real possibility in Puerto Rico, which has over 10,690 confirmed cases of Zika virus, after federal officials declared a health emergency for the island. The designation permits emergency funding to be allocated to the territory, emergency personnel to be deployed as needed, and even the waiving of certain regulatory procedures. If Oxitec uses its mosquitoes on American soil in 2016, it may very well be in Puerto Rico, although officials have not signaled that the technology is being discussed.

Investor takeaway

It didn't take long for Zika virus to make its way to the continental United States, but the current outbreak could evolve in any number of scenarios ranging from a small urban outbreak to a multistate epidemic. While it's too soon to know how this will play out, the importance of tools used to combat mosquitoes just increased considerably.However, Intrexon cannot release its self-limiting mosquitoes without regulatory approval or an emergency declaration (not likely for a handful of cases in Florida).

The only thing investors can count on is that the outbreak will put Intrexon and Oxitec back in the headlines -- but that's not going to have a material impact on the business.

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Maxx Chatsko has no position in any stocks mentioned. Follow him on Twitterto keep up with developments in the engineered biology field.

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