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The close relationship between Ziopharm Oncology (NASDAQ: ZIOP) and Intrexon (NYSE: XON) hasn't gone unnoticed by investors -- in fact, it's impossible to overlook since the latter is likely responsible for a majority of the former's $660 million market cap. Some investors have interpreted that as a sign of extreme confidence in the potential of the partnered clinical trials to succeed. Others have taken it one step further by buying stock in both companies, even convinced that Ziopharm is a prime takeover target by Intrexon or another biopharma.
If you had to choose just one, though, which company would be the better buy? As it turns out, it's not even close: Intrexon wins in a landslide. But is that due to the company's own strengths, or Ziopharm's weaknesses? And although it's the better buy, does that mean you should buy Intrexon stock?
Ziopharm is a biopharma developing gene and cell therapies targeting cancers and autoimmune diseases. The company's most advanced drug candidate is in two clinical trials investigating its effectiveness against breast cancer (phase 2) and brain cancer (phase 1). After that, a long list of pipeline programs centered on CAR-T and cytokine therapeutics are targeting various cancers and autoimmune diseases, although the most advanced is only just beginning a phase 1 trial.
Investors are the most excited about the potential of the CAR-T trials, which are being jointly developed by Ziopharm, Intrexon, and the prestigious MD Anderson. While the companies were a little late to the immunotherapy party, it has hardly dampened enthusiasm for the program. There may be good reason that the particular technology licensed from MD Anderson, called Sleeping Beauty, drew little interest from other biopharma companies, but it's still too early to draw conclusions.
Ziopharm is clearly in the early stages of drug development. That represents one risk to be sure, but the bigger risk is that the company is completely, 100% dependent on Intrexon for all of its clinical trials. All of the drug programs -- and all seven of the enabling technologies -- have been licensed from Intrexon. It's an unusual level of dependence that gets worse when investors consider a lack of data coming from early stage trials to date.
On the other hand, while Intrexon is working very closely with Ziopharm in biopharma, it's also developing multiple technology platforms spanning agriculture, aquaculture, fish and animal feed, public health, fuels, consumer products, and numerous other biopharma applications. It's a dizzying onslaught of pipeline potential, which has excited investors since the company's IPO in 2013. It also highlights the obvious: Intrexon has comparatively little riding on the success of Ziopharm. The latter could cease operations tomorrow and Intrexon, while likely taking a hit in the near term, would remain well-positioned for potential growth in the long term.
In fact, Intrexon has already taken steps to lower expectations for the relationship. Earlier this summer the company adjusted the royalty structure for certain clinical programs being conducted by Ziopharm. Previously, Intrexon was due to receive 50% of the profits on any future marketed products. Now, it will receive just 20%, trading in the balance for $120 million in newly created Ziopharm stock.
The differences between Ziopharm and Intrexon are evident when analyzing financials, too. Here's how the duo compare for the first half of 2016.
Data source: SEC filings.
The results demonstrate the more diverse operations of Intrexon compared to Ziopharm. In fact, Intrexon generated $19.4 million in product revenue at roughly breakeven margins in the first half of this year. That's well above the total revenue generated by Ziopharm in the same period, which was all sourced from Intrexon. Meanwhile, Ziopharm's cash balance is small has been declining over the past year, while Intrexon's larger horde has been growing.
What does it mean for investors?
While it's clear that Intrexon is the better buy compared to Ziopharm, that's not to say that Intrexon is a screaming buy. The company has acquired several technology platforms with amazing growth potential -- genetically engineered fruits, self-limiting mosquitoes, high-protein insects for fish and animal feeds, and others -- but they sit alongside technology platforms with questionable or flat-out disproven potential that have failed to garner interest from respectable (or in some cases, any) partners. The number of shots on goal takes some risk off the table. However, the risk of significant adjustments from high-profile failures should give pause to individual investors.
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