 | MARKET CONDITIONS PROFILED: Intrexon (XON) |
There are many qualities that make up a successful company, and contrary to popular belief, there is no magical cocktail of factors that every world leader must tick to climb to the top of its field. For example, the success of Apple Inc. is driven by a culture driven by researching, designing, developing, testing and marketing products that create markets that previously didn't exist, that at the same time creating a strong desire from individuals worldwide to own them.
That’s exactly what it did with iPods, iPhones and the iPad. The iWatch may be next. The strength of Google is understanding people, and how they behave online and in the real world. By doing this they are able to collect data, analyze it, package it, and ultimately, use it to create ever-better products and services, all of which attracts customers and advertisers to their world. Finding a new company that has a clear, simple to understand business model that can be applied in a wide market is a rarity, and finding one before it attracts the attention of the stock market is even more rare.
So hopefully, this article will answer the question, is Intrexon (XON) the next great biotechnology success story and is its' most recent close price of $25.90 is an opportunity to buy before everyone else does?
The Company and Business Model
The company starts badly in answering that question. It’s clear that not every company has an easy to distill message that communicates what exactly it does, and how it makes money. But that is one of the most fundamental considerations that has to be made when assessing whether you are going to put your own money into a business as a shareholder.
Intrexon (XON) is a biotechnology company that is active in the new field of synthetic biology. That’s not a bad thing by itself. New fields mean that the market is not saturated with competitors and the pressures that they bring. It’s less good when its unclear what the field does specifically, and how it can make money.
The company itself tries to explain its activities as assisting in designing and regulating those activities that take place within a cell, by manipulating DNA. It further states that by doing so, the applications for their technology are available in the full range of occupations and fields, from energy to food production as well as healthcare and science. Their suite of products includes Cell System Informatics a “Bioinformatics” software application and UltraVector an “integrated suite of tools”.
That sounds impressive. But dig a little deeper and things start to get disturbing. The product offerings mentioned above comprise in major parts fancy database systems. Yep. A database. That’s what is underpinning those fancy names and impressive (and definitely made-up) words like Bioinformatics. Further, if the technology did what it said it did, there would be a more focused approach to its application rather than a generic list of industries where DNA engineering could certainly have far-reaching and world-changing applications.
Financial Facts and Figures
Unfortunately the financial facts and figures disclosed at the last earnings call did nothing to change the unclear picture of the company. Expenses increased from a modest $1.1 million to almost double that amount. There was also over $1 million in charges related to stock options, a massive number when considering the size of the company, the burn rate of cash and the short trading history with no profits to back it up.
The figures are even worse for the research and development side of operations, with costs blowing out by 93% compared to the previous corresponding quarter. Even worse, most went on employee costs, with no new products or significant commercial initiatives beyond a research partnership with a University and some tentative and very early stage trials on various diseases.
The figure that should be of most concern, however, is the one that indicates just how fast the company is burning cash. In nine short months it was able to spend $4.9 million, with no discernible change in the company metrics. While that may not sound significant, it represented half of the companies total cash pile, and indicates that a capital raising or more investment will be needed from shareholders very soon to bolster a deteriorating balance sheet..
Outlook
The industry outlook for synthetic biology may well be in transformation. The ability to change the quality of foodstuffs, prevent disease and engineer better medicine all has the power to change the world, and should be taken seriously.
However, Intrexon (XON) as it currently stands does not look as though it has the strengths to deliver such lofty goals. Poor financial management, an unclear business focus and a lack of cash generating products or services all point to a company that is difficult to get enthusiastic about.
Conclusion
Finding new companies with novel business ideas and innovative approaches to solving the problems they set out to tackle is one of the most rewarding aspects of investing. Identifying these stocks has the potential to be a once in a lifetime success, like those who bought into Google or Apple early on.
However, an investor needs to understand the business well enough to be comfortable in risking their money. A company like Intrexon (XON) could well be the next big thing, but at present it appears to leave far too many questions unanswered for the vast majority of investors.
However, technically it looks like XON has bottomed out at $24 level and any good news would attract buyers. Therefore, prudent investors should keep eye on XON to make its move to the upside with a stop below $23.00 and target 34.00.
That’s exactly what it did with iPods, iPhones and the iPad. The iWatch may be next. The strength of Google is understanding people, and how they behave online and in the real world. By doing this they are able to collect data, analyze it, package it, and ultimately, use it to create ever-better products and services, all of which attracts customers and advertisers to their world. Finding a new company that has a clear, simple to understand business model that can be applied in a wide market is a rarity, and finding one before it attracts the attention of the stock market is even more rare.
So hopefully, this article will answer the question, is Intrexon (XON) the next great biotechnology success story and is its' most recent close price of $25.90 is an opportunity to buy before everyone else does?
The Company and Business Model
The company starts badly in answering that question. It’s clear that not every company has an easy to distill message that communicates what exactly it does, and how it makes money. But that is one of the most fundamental considerations that has to be made when assessing whether you are going to put your own money into a business as a shareholder.
Intrexon (XON) is a biotechnology company that is active in the new field of synthetic biology. That’s not a bad thing by itself. New fields mean that the market is not saturated with competitors and the pressures that they bring. It’s less good when its unclear what the field does specifically, and how it can make money.
The company itself tries to explain its activities as assisting in designing and regulating those activities that take place within a cell, by manipulating DNA. It further states that by doing so, the applications for their technology are available in the full range of occupations and fields, from energy to food production as well as healthcare and science. Their suite of products includes Cell System Informatics a “Bioinformatics” software application and UltraVector an “integrated suite of tools”.
That sounds impressive. But dig a little deeper and things start to get disturbing. The product offerings mentioned above comprise in major parts fancy database systems. Yep. A database. That’s what is underpinning those fancy names and impressive (and definitely made-up) words like Bioinformatics. Further, if the technology did what it said it did, there would be a more focused approach to its application rather than a generic list of industries where DNA engineering could certainly have far-reaching and world-changing applications.
Financial Facts and Figures
Unfortunately the financial facts and figures disclosed at the last earnings call did nothing to change the unclear picture of the company. Expenses increased from a modest $1.1 million to almost double that amount. There was also over $1 million in charges related to stock options, a massive number when considering the size of the company, the burn rate of cash and the short trading history with no profits to back it up.
The figures are even worse for the research and development side of operations, with costs blowing out by 93% compared to the previous corresponding quarter. Even worse, most went on employee costs, with no new products or significant commercial initiatives beyond a research partnership with a University and some tentative and very early stage trials on various diseases.
The figure that should be of most concern, however, is the one that indicates just how fast the company is burning cash. In nine short months it was able to spend $4.9 million, with no discernible change in the company metrics. While that may not sound significant, it represented half of the companies total cash pile, and indicates that a capital raising or more investment will be needed from shareholders very soon to bolster a deteriorating balance sheet..
Outlook
The industry outlook for synthetic biology may well be in transformation. The ability to change the quality of foodstuffs, prevent disease and engineer better medicine all has the power to change the world, and should be taken seriously.
However, Intrexon (XON) as it currently stands does not look as though it has the strengths to deliver such lofty goals. Poor financial management, an unclear business focus and a lack of cash generating products or services all point to a company that is difficult to get enthusiastic about.
Conclusion
Finding new companies with novel business ideas and innovative approaches to solving the problems they set out to tackle is one of the most rewarding aspects of investing. Identifying these stocks has the potential to be a once in a lifetime success, like those who bought into Google or Apple early on.
However, an investor needs to understand the business well enough to be comfortable in risking their money. A company like Intrexon (XON) could well be the next big thing, but at present it appears to leave far too many questions unanswered for the vast majority of investors.
However, technically it looks like XON has bottomed out at $24 level and any good news would attract buyers. Therefore, prudent investors should keep eye on XON to make its move to the upside with a stop below $23.00 and target 34.00.
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