SEC Filing Summary: Intrexon Corporation 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing is for Intrexon Corporation, not Precigen, Inc.; Intrexon transferred substantially all human-health gene and cell therapy assets to newly formed wholly owned Precigen effective January 1, 2018.
Business context
Intrexon applied synthetic biology technologies across human and animal health, food and agriculture, energy and chemicals, environmental applications, and consumer products. Its model combined exclusive channel collaborations, licensing arrangements, joint ventures, operating subsidiaries, acquisitions, and increasing internal development of product candidates. Most human therapeutic programs remained preclinical or clinical, and the company stated that no products derived from its collaborations had yet been commercialized.
Key financial metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Total revenue | $231.0 million | $190.9 million | Up 21.0% |
| Collaboration and licensing revenue | $145.6 million | $109.9 million | Up 32.5% |
| Product revenue | $33.6 million | $37.0 million | Down 9.1% |
| Service revenue | $50.6 million | $43.0 million | Up 17.6% |
| Operating loss | $137.9 million | $125.2 million | Loss widened 10.2% |
| Net loss | $126.8 million | $190.3 million | Loss narrowed 33.3% |
| Net loss attributable to Intrexon | $117.0 million | $186.6 million | Loss narrowed 37.3% |
| Loss per share | $0.98 | $1.58 | Improved |
| Research and development expense | $143.2 million | $112.1 million | Up 27.7% |
| Cash used in operating activities | $104.1 million | $56.0 million | Use increased |
Reported product and service gross profit was approximately $20.8 million, or 24.7% of product and service revenue; a consolidated gross margin is not directly comparable because collaboration and licensing revenue does not have a separately presented corresponding cost base. Operating margin was approximately negative 59.7% and net margin approximately negative 54.9%.
- Cash and cash equivalents were $68.1 million; short-term investments were $6.3 million.
- Total assets were $846.9 million and total equity was $546.5 million.
- Total liabilities were $300.3 million, including $8.0 million of long-term debt and $236.4 million of deferred revenue.
- Accumulated deficit was $847.8 million.
- Investments included $161.2 million of preferred stock and $15.1 million of equity securities, both subject to valuation volatility.
- Research and development spending represented approximately 62% of total revenue, reflecting continued investment in platform and product programs.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by collaboration and licensing revenue, including recognition of $28.9 million of previously deferred revenue after the December 2017 termination of the second ZIOPHARM collaboration for graft-versus-host disease.
- Product revenue declined because of lower customer demand for cows and live calves, while service revenue increased due to higher bovine in-vitro fertilization activity.
- Operating expenses increased 16.7% to $368.9 million. R&D increased $31.1 million, and the company recorded $16.8 million of impairment charges, including approximately $13.0 million related to AquaBounty goodwill and $3.0 million related to in-process research and development.
- Net loss improved primarily because 2016 included substantial losses from changes in the fair value of equity securities and preferred stock. Other income, net, improved from a $47.9 million expense in 2016 to $22.5 million of income in 2017.
- Operating cash use increased to $104.1 million, partly because deferred revenue declined by $75.3 million as previously received upfront and milestone payments were recognized.
- Investing activities provided $104.3 million, principally from $174.5 million of investment maturities, partially offset by $46.7 million of capital expenditures, $14.2 million for an AquaBounty aquaculture facility, and $11.2 million of joint-venture investments.
- GenVec was acquired in June 2017 for approximately $17.6 million, primarily adding AdenoVerse gene-delivery technology.
- Intrexon acquired the remaining 49% of BioPop in March 2017 and became its sole owner.
- S&I Ophthalmic was dissolved and its ECC terminated in December 2017.
Guidance, outlook, risks and unusual items
- Management expected continued significant losses and negative operating cash flow for the foreseeable future and stated that profitability might never be achieved.
- The company expected R&D spending to increase as it expanded internal programs, collaborations, platform technologies, and commercial scale-up activities.
- Management stated that cash, investments, expected collaborator receipts, subsidiary sales, and the January 2018 financing were expected to fund operating and capital requirements for at least the next 12 months, but noted that estimates could prove incorrect and additional capital might be required.
- In January 2018, Intrexon completed a public offering of 6.9 million shares for net proceeds of $82.2 million. It also purchased $5.0 million of additional AquaBounty shares, reducing ownership from approximately 58% to 53%.
- The company had $90.2 million of listed contractual obligations, including operating leases, purchase commitments, debt, and contingent consideration, plus $19.2 million of remaining joint-venture capital commitments and $10.7 million of incurred-but-not-yet-paid R&D commitments.
- OvaScience gave notice in February 2018 to terminate its ECC effective May 2018; Intrexon expected to recognize approximately $3.2 million of related deferred revenue in 2018 and was discussing dissolution of the OvaXon joint venture.
- Risks include dependence on collaborators and joint ventures, regulatory approval and commercialization uncertainty, high clinical and manufacturing failure rates, competition, intellectual-property disputes, public opposition to genetically engineered products, disease or production losses, acquisition integration, foreign-exchange exposure, and future financing needs.
- The company was cooperating with an SEC Division of Enforcement investigation believed to concern issues related to prior shareholder and derivative litigation. One derivative action remained pending at the filing date; other referenced shareholder actions had been dismissed.
- The Tax Cuts and Jobs Act resulted in provisional tax accounting adjustments, including an $87.5 million reduction in domestic deferred tax assets offset by a valuation allowance. The company estimated zero transition-tax exposure, but stated that the provisional amounts could change materially.
- The company maintained effective disclosure controls and effective internal control over financial reporting as of December 31, 2017, according to management and its independent auditor.
Most important facts for investors to verify
- Confirm the post-filing corporate structure and the separation of Precigen’s human-health assets from Intrexon.
- Assess how much 2017 revenue was recurring research-service revenue versus nonrecurring recognition of deferred upfront or milestone payments.
- Review cash burn, available financing capacity, and the timing and conditions of the $100 million Series A preferred-stock facility.
- Evaluate the sustainability and liquidity of the $161.2 million preferred-stock portfolio and other collaborator equity holdings.
- Track AquaBounty ownership, potential deconsolidation if ownership falls below 50%, and the commercial scale-up of salmon, Arctic apples, and genetically engineered mosquitoes.
- Review remaining joint-venture contributions, lease and purchase commitments, contingent consideration, and the AquaBounty royalty-based financing obligation.
- Monitor the SEC investigation, the remaining Trans Ova/XY patent litigation, and any related legal or regulatory costs.
- Verify the impact of adopting ASC Topic 606 in 2018, including the expected $40.4 million cumulative increase to deferred revenue and accumulated deficit.