Business context and reporting period
The source text is an Intrexon Corporation Form 10-K for the fiscal year ended December 31, 2014, filed March 2, 2015. Although the request identifies the company as PRECIGEN, INC., the filing identifies the registrant as Intrexon Corporation. The company applied synthetic biology technologies through exclusive channel collaborations, joint ventures, and consolidated subsidiaries across healthcare, food, energy, environmental, and consumer markets. No commercial products had yet been enabled by Intrexon’s collaboration technologies.
At December 31, 2014, Intrexon had 26 active exclusive channel collaborations, one research collaboration, three joint ventures, 480 full-time employees, and 78 part-time employees. The company consolidated Medistem from March 6, 2014, and Trans Ova Genetics from August 8, 2014.
Key financial metrics
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Total revenue | $71.9 million | $23.8 million | Up 202.7% |
| Collaboration revenue | $45.2 million | $23.5 million | Up 92.2% |
| Product revenue | $11.5 million | $0.2 million | Up $11.3 million |
| Service revenue | $14.8 million | — | New in 2014 |
| Operating loss | $(70.0) million | $(58.0) million | Loss widened $11.9 million |
| Net loss | $(85.6) million | $(40.9) million | Loss widened $44.7 million |
| Net loss attributable to Intrexon | $(81.8) million | $(39.0) million | Loss widened $42.8 million |
| Loss per common share | $(0.83) | $(1.40) | Improved per share due to higher share count |
| Research and development expense | $59.0 million | $48.1 million | Up 22.5% |
| Selling, general and administrative expense | $63.6 million | $33.6 million | Up 89.3% |
| Operating cash flow | $(19.9) million | $(53.7) million | Use decreased $33.8 million |
| Cash and cash equivalents | $27.5 million | $49.5 million | Down $22.0 million |
| Short- and long-term investments | $115.6 million | $188.6 million | Down $73.0 million |
| Equity securities | $164.9 million | $141.5 million | Up $23.4 million |
| Total assets | $576.3 million | $469.5 million | Up $106.8 million |
| Total debt, including current portion | $10.4 million | $1.7 million | Up $8.7 million |
| Deferred revenue | $113.2 million | $73.6 million | Up $39.6 million |
The reported operating margin was approximately negative 97.3% and the net loss attributable to Intrexon margin was approximately negative 113.8%. These margins reflect the company’s substantial research, development, corporate, acquisition, and public-company costs and are not directly comparable to a conventional product company’s margins.
Product and service revenue was $26.2 million, primarily from Trans Ova’s livestock sales and bovine reproductive services. Related costs were $19.3 million, producing an approximate product-and-service gross contribution of $6.9 million before other operating expenses.
Material changes versus the prior comparable period
- Revenue increased substantially because of higher collaboration activity, recognition of deferred upfront and milestone payments, and research and development reimbursements. Intrexon Energy Partners contributed $6.1 million of collaboration revenue.
- Product and service revenue increased primarily because Trans Ova was consolidated beginning August 8, 2014. Trans Ova contributed $26.4 million of revenue and $0.3 million of net income after acquisition.
- Operating expenses increased 73.5%, driven by higher research and development spending, public-company staffing and compliance costs, stock-based compensation, acquisition-related costs, and the inclusion of acquired subsidiaries.
- Other income declined materially, from $17.7 million of net other income in 2013 to $10.5 million of net other expense in 2014. The principal factor was a $10.5 million unrealized depreciation in collaborator equity securities in 2014 versus $10.4 million of unrealized appreciation in 2013. The 2013 period also included a $7.4 million gain on the previously held AquaBounty investment.
- Equity-method losses increased to $5.3 million from $0.6 million, reflecting a full year of losses at S & I Ophthalmic, losses at OvaXon, and losses at Intrexon Energy Partners.
- Research and development expense increased to $59.0 million, while selling, general and administrative expense increased to $63.6 million. Stock-based compensation rose to $21.8 million from $2.9 million.
- Cash used in operations improved to $19.9 million from $53.7 million, partly because of a $25.0 million technology access fee received from Intrexon Energy Partners and increased deferred revenue.
- Investing cash use was $26.0 million, including $67.6 million for the Medistem and Trans Ova acquisitions, $19.5 million for collaborator equity purchases, and $6.4 million for property and equipment.
- Total equity increased to $409.3 million from $381.3 million, while accumulated deficit increased to $458.2 million from $376.4 million.
Guidance, outlook, commentary, risks, and unusual items
Management stated that existing cash, investments, and expected receipts from collaborators and consolidated subsidiaries were expected to fund operating expenses and capital expenditures for at least the next 12 months. Management also cautioned that future capital needs could be substantial and that the company could require additional equity, debt, collaboration, licensing, or other financing.
Management expected research and development and selling, general and administrative expenses to increase as the company added collaborations, expanded its technology platform, integrated acquisitions, and incurred additional public-company compliance costs. The company had never generated royalty revenue from collaborator product sales and did not expect near-term profitability to be assured.
- The company had no commercialized products enabled by its synthetic biology technologies and remained dependent on collaborators for development, regulatory approval, manufacturing, marketing, and commercialization.
- At December 31, 2014, deferred consideration associated with Trans Ova was $20.5 million, of which $7.1 million was classified as current.
- Contractual obligations totaled $57.6 million, including operating leases, deferred consideration, long-term debt, and a $12.6 million ZIOPHARM equity purchase obligation. A further approximately $6.4 million of the ZIOPHARM commitment remained after the February 2015 purchase and was not included in the table because timing was uncertain.
- Intrexon had committed up to $25.0 million of capital contributions to Intrexon Energy Partners, with $23.6 million remaining at December 31, 2014.
- AquaBounty’s AquAdvantage Salmon remained subject to FDA approval, with timing uncertain. AquaBounty had $5.2 million of cash and cash equivalents and $4.6 million of working capital at December 31, 2014, expected to fund operations only into mid-2015.
- Trans Ova was defending a licensing and patent infringement action brought by XY, Inc. Management stated that the outcome could not be predicted, although it did not expect the matter to have a material adverse effect based on available information.
- Subsequent events included a January 2015 license arrangement with MD Anderson and ZIOPHARM for CAR T-cell technologies, a $116.4 million gross public equity offering, the acquisition of ActoGeniX, the acquisition of remaining Exemplar interests, and an agreement to acquire Okanagan Specialty Fruits.
- The company ceased to qualify as an emerging growth company as of December 31, 2014, increasing certain reporting and audit requirements.
Most important facts an investor should verify
- Confirm that the filing belongs to Intrexon Corporation rather than PRECIGEN, INC., and reconcile any requested company-name discrepancy.
- Review the audited statements and notes supporting the $71.9 million of revenue, $85.6 million net loss, $19.9 million operating cash outflow, and $143.1 million of cash, cash equivalents, and investments.
- Assess the sustainability and quality of collaboration revenue, including the $113.2 million deferred revenue balance and the absence of commercial royalty revenue.
- Evaluate the market value, liquidity restrictions, and volatility of the $164.9 million collaborator equity portfolio, which materially affected reported earnings.
- Review acquisition accounting for Trans Ova and Medistem, including $101.1 million of goodwill, $65.9 million of intangible assets, deferred consideration, and integration risks.
- Verify debt maturities, credit-line covenants, joint-venture capital commitments, the remaining ZIOPHARM purchase obligation, and other contingent payments.
- Monitor FDA and other regulatory developments for AquaBounty and the company’s collaborator-developed therapeutic and genetically engineered products.
- Review related-party transactions and governance implications, including the substantial voting control held by CEO and Chairman Randal J. Kirk and affiliates.
- Consider dilution from the January 2015 equity offering, subsequent acquisitions, stock options, and the MD Anderson license-related share issuances.