New Collaboration with Intrexon

We believe that the collaboration announced last week with privately held Intrexon, makes Adeona a more interesting story. Further, we believe that AEN will now increasingly be viewed as a play in synthetic biology. Hence, we are increasing our 12-mont price target to $1.25.

Intrexon has been conducting pioneering work in the emerging field of synthetic biology. Simply stated, synthetic biology seeks to combine concepts from biology and engineering to the design and construction of new biological functions and systems not found in nature. A key attribute is a heavy emphasis on developing foundational technologies that make the engineering of biology easier and more reliable. Further, as the design platforms are in silico, this approach facilitates continued improvement of the predictive capabilities incorporated in the discovery platforms. Much like the negative feed-back loop employed in control systems to achieve stability, knowledge gained from both unsuccessful and successful predictions helps to improve the accuracy of the models in future predictive iterations. Hence this is a systematic approach that is very efficient, fast and low cost.

Under the collaboration, Adeona has been select by Intrexon to develop and commercialize a DNA-based therapeutic using Intrexon's technology for the treatment of pulmonary arterial hypertension (PAH). More specifically, Adeona will utilize Intrexon's advanced transgene engineering platform for the controlled, precise and continuous in vivo cellular production of prostaglandin synthase, which is a specific effector enzyme that regulates the production of prostacyclin. Prostacyclin is a short-acting vasodilator and inhibitor of platelet aggregation that has demonstrated a survival benefit in primary pulmonary hypertension patients when administered by continuous central venous catheter infusion. Prostaglandin synthase expression is known to be decreased in the lungs of PAH patients.

The CEO of Intrexon, R.J. Kirk is well know to biotech investors. His previous successes include New River Pharmaceuticals, which he sold to Shire (SHPGY, $92.12, Not Rated) in 2007 for $2.6 billion. and Clinical Data, which he sold to Forest Labs (FRX, $28.63, Not Rated) earlier this year for. an upfront payment of $1.2 billion. Hence, we believe that his investment in Adeona is both a positive, and will increase the level of interest in AEN.

As a development stage company, accurate valuation is more complex and requires a number of forward assumptions, which at best are inexact. Assuming a fully diluted share count of 50 million, using a P/E multiple of 37x our FY2020 net income estimate of $117 million driven by royalty payments from Trimesta only, discounted back 8 years at 70%, establishes our 12-month price target of $1.00.