Third-Point-Q4-2013-Investor-Letter-TPOI

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T-Mobile’s dynamic management team has imported to the U.S. market (apparently from Softbank in Japan). Without a combination, Sprint and T-Mobile are expected to play out the sell-side narrative, ceding share while becoming increasingly ripe targets for the massive financial firepower of AT&T and Verizon. While the environment for legitimate business combinations faces potentially unfriendly regulatory dynamics, the combination of Sprint and T-Mobile creates the only real counterbalance to a decade-long market and profit share grab by the industry’s two largest players. Equity Position: Intrexon Corporation (“Intrexon”) We initially invested in Intrexon in 2011 in a private round and have continued to accumulate shares since its IPO in August 2013. We believe that Intrexon is an innovation leader in synthetic biology with a unique value proposition and proven leadership team. Most attractive to us is Intrexon’s potential to transform multiple industries, including the health, food, and energy markets. Synthetic biology is an emerging discipline that applies engineering design principles to biologic systems. Broadly speaking, synthetic biology is about the design, modification, and regulation of gene programs to produce a desired outcome, such as the production of a novel antibody from a cell culture, the optimization of a specific gene trait in crops, or the amplification of wild type natural gas metabolism into an industrially feasible process. Over the past 15 years, Intrexon has developed deep expertise in synthetic biology as well as the adjacent fields of process optimization and data analysis to create a unique technology platform that enables the iterative, directed improvement of experimental design. To leverage its technology with collaborators, Intrexon has developed a unique business model that centers on Exclusive Channel Collaborations (ECCs) with partners. In exchange for providing access to their technology, Intrexon receives cost reimbursement (thus mitigating the need to raise additional external funds) and significant downstream economics. Because Intrexon’s technology is scalable, its capacity to sign ECCs across multiple industries is limited only by the ambition of its partners. Indeed, to date, Intrexon has already signed over 15 ECCs including, notably, with Johnson & Johnson. Over the course of 2014 and beyond, we anticipate that Intrexon will sign multiple ECCs, creating a broad pipeline of projects and diversifying away from specific product risk. Intrexon is led by Chairman and CEO Randal J. Kirk, one of the most successful healthcare leaders of all time. Kirk founded and led New River Pharmaceuticals until its acquisition by Shire, and led Clinical Data through the successful development and approval of the antidepressant Viibryd before selling the company to Forest. While his track record of value creation speaks for itself, we especially like that Kirk has personally invested significantly 10
in Intrexon’s success through Third Security, which owns nearly 2/3 of Intrexon’s shares outstanding. While Intrexon’s business model may seem foreign to the healthcare industry, it reminds us of an undisputed technology leader: Qualcomm. Qualcomm out-licenses its CDMA technology and in return receives significant economics from its partners upon commercialization; the explosive growth of the global wireless communication market and its dominant position has driven Qualcomm to a $125 billion market cap. While we aren’t saying that Intrexon will become a $125 billion company overnight, we will note the following two points: (1) the manipulation of DNA and gene sequences to produce beneficial outcomes is a well-established paradigm; (2) the global health, food, and energy markets dwarf the wireless communication market in size. Sincerely, Third Point LLC _____________________ Third Point LLC (“Third Point” or “Investment Manager”) is an SEC-registered investment adviser headquartered in New York. Third Point is primarily engaged in providing discretionary investment advisory services to its proprietary private investment funds (each a “Fund” collectively, the “Funds”). Third Point’s Funds currently consist of Third Point Offshore Fund, Ltd. (“TP Offshore”), Third Point Ultra Ltd., (“TP Ultra Ltd.”), Third Point Partners L.P. (“TP Partners LP”) and Third Point Partners Qualified L.P. Third Point also currently manages three separate accounts. The Funds and any separate accounts managed by Third Point are generally managed as a single strategy while TP Ultra Ltd. has the ability to leverage the market exposure of TP Offshore. All performance results are based on the NAV of fee paying investors only and are presented net of management fees, brokerage commissions, administrative expenses, and accrued performance allocation, if any, and include the reinvestment of all dividends, interest, and capital gains. While performance allocations are accrued monthly, they are deducted from investor balances only annually (quarterly for Third Point Ultra) or upon withdrawal. The performance results represent fund-level returns, and are not an estimate of any specific investor’s actual performance, which may be materially different from such performance depending on numerous factors. All performance results are estimates and should not be regarded as final until audited financial statements are issued. The performance data presented represents that of Third Point Offshore Fund Ltd. All P&L or performance results are based on the net asset value of feepaying investors only and are presented net of management fees, brokerage commissions, administrative expenses, and accrued performance allocation, if any, and include the reinvestment of all dividends, interest, and capital gains. The performance above represents fund-level returns, and is not an estimate of any specific investor’s actual performance, which may be materially different from such performance depending on numerous factors. All performance results are estimates and should not be regarded as final until audited financial statements are issued. Exposure data represents that of Third Point Offshore Master Fund L.P. While the performances of the Funds have been compared here with the performance of a well-known and widely recognized index, the index has not been selected to represent an appropriate benchmark for the Funds whose holdings, performance and volatility may differ significantly from the securities that comprise the index. Investors cannot invest directly in an index (although one can invest in an index fund designed to closely track such index). Past performance is not necessarily indicative of future results. All information provided herein is for informational purposes only and should not be deemed as a recommendation to buy or sell securities. All investments involve risk including the loss of principal. This transmission is confidential and may not be redistributed without the express written consent of Third Point LLC and does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Any such offer or solicitation may only be made by means of delivery of an approved confidential offering memorandum. Specific companies or securities shown in this presentation are meant to demonstrate Third Point’s investment style and the types of industries and instruments in which we invest and are not selected based on past performance. The analyses and conclusions of Third Point contained in this presentation include certain statements, assumptions, estimates and projections that reflect various assumptions by Third Point concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, assumptions, estimates or projections or with respect to any other materials herein. 11
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