Business Context and Reporting Period
This unaudited Form 10-Q is for Intrexon Corporation, the registrant identified in the filing, for the three months ended March 31, 2014. The request metadata identifies Precigen, Inc.; investors should verify the issuer and corporate-name history. Intrexon operated as a synthetic-biology company forming exclusive channel collaborations to develop products in healthcare, food, energy, environmental and consumer markets. No products arising from collaborations had been commercialized as of the filing date.
The company reported approximately 20 active exclusive channel collaborations and one research collaboration. It consolidated AquaBounty Technologies, Inc. at approximately 60% ownership and BioPop at 51%, and accounted for several joint ventures using the equity method.
Key Financial Metrics
| Metric | Three Months Ended March 31, 2014 | Three Months Ended March 31, 2013 |
|---|---|---|
| Total revenue | $7.854 million | $3.885 million |
| Collaboration revenue | $7.837 million | $3.864 million |
| Operating expenses | $25.726 million | $17.891 million |
| Operating loss | $(17.872) million | $(14.006) million |
| Net income (loss) | $3.249 million | $(36.362) million |
| Net income (loss) attributable to Intrexon | $4.115 million | $(36.311) million |
| Basic and diluted earnings (loss) per share | $0.04 | $(7.54) |
| Net cash provided by (used in) operating activities | $9.479 million | $(14.279) million |
Revenue increased 102.2% year over year. The operating margin was approximately negative 227.5%, while net income attributable to Intrexon equaled approximately 52.4% of revenue; the latter was substantially affected by non-operating fair-value gains.
At March 31, 2014, cash and cash equivalents were $110.052 million, short-term investments were $112.755 million, and long-term investments were $40.212 million. Combined cash and investments totaled approximately $263.0 million. Current assets were $232.932 million versus current liabilities of $22.212 million.
Total assets were $547.808 million and total equity was $431.898 million. Total liabilities were $115.910 million, including $1.784 million of long-term debt and $101.980 million of deferred revenue. The filing does not indicate material conventional corporate borrowings beyond the disclosed debt and lease obligations.
Material Changes Versus the Prior Comparable Period
- Collaboration revenue increased $3.973 million, or 102.8%, primarily from recognizing deferred revenue related to 13 collaborations or expansions signed between April 1, 2013 and March 31, 2014, as well as increased reimbursed research and development services.
- Research and development expense increased 6.0% to $12.091 million, partly because the company included a full quarter of AquaBounty expenses rather than 16 days in the prior-year quarter.
- General and administrative expense increased 110.4% to $13.635 million. The increase reflected public-company costs, additional personnel, stock-based compensation, director compensation, acquisition-related legal costs, insurance, accounting and audit fees, and the full-quarter consolidation of AquaBounty.
- Other income changed from a $21.966 million expense to $21.963 million of income. The 2014 amount included a $21.922 million unrealized appreciation in collaborator equity securities; the 2013 amount included a $29.369 million unrealized depreciation and a $7.415 million gain on the previously held AquaBounty investment.
- Operating cash flow improved to $9.479 million, primarily because the company received a $25.0 million technology access fee from Intrexon Energy Partners and recorded a $23.184 million increase in deferred revenue.
- Cash increased $60.543 million during the quarter, supported by investment maturities of $35.249 million and $25.0 million of proceeds from a private placement of common stock.
Guidance, Outlook, Risks and Unusual Items
Management stated that existing cash, investments and expected collaborator payments should fund operating expenses and capital expenditures for at least the next 12 months, but cautioned that actual capital needs could be greater. The company expected continued significant operating losses and stated that it might never achieve or maintain profitability. It had never generated royalty revenue from commercialized collaborator products.
- On March 6, 2014, the company acquired Medistem, Inc. for total preliminary consideration of $24.995 million, including $4.920 million in cash, $19.368 million in common stock and settlement of $0.707 million of notes. The acquisition added $25.866 million of preliminary goodwill.
- On March 20, 2014, the company paid $10.0 million for additional AquaBounty shares, increasing ownership to approximately 59.85%.
- On March 26, 2014, Intrexon Energy Partners was formed. Investors contributed $25.0 million for a 50% interest, while Intrexon contributed technology for its 50% interest and committed to potential additional contributions of up to $25.0 million. Intrexon recognized a $25.0 million technology access fee as deferred revenue.
- The company had $101.980 million of deferred revenue, of which $100.750 million related to upfront and milestone payments. Future revenue recognition depends on satisfying collaboration obligations.
- The company had approximately $19.0 million remaining under a commitment to purchase Ziopharm securities, potential future joint-venture contributions, $2.6 million of third-party research and development commitments, and $19.345 million of operating-lease obligations.
- Equity securities were carried at $168.672 million and produced substantial quarter-to-quarter earnings volatility. A hypothetical 10% increase or 20% decrease in their value would have changed their aggregate fair value to approximately $185.5 million or $134.9 million, respectively.
- The company reported approximately $235.4 million of federal net operating-loss carryforwards and $7.0 million of federal and state research and development tax credits, subject to potential Section 382 limitations.
- The company gave notice on April 24, 2014 to terminate its related-party Halozyme license; it stated that no future payments would be required under that agreement.
- Management stated that no material changes had occurred to previously disclosed risk factors. Principal risks include continued losses, dependence on collaborators, regulatory approval and commercialization uncertainty, market volatility of equity investments, intellectual-property protection, competition, financing needs, dilution, and potential additional capital contributions.
Investor Verification Items
- Verify the issuer name and corporate-name history because the filing identifies Intrexon Corporation, while the request metadata identifies Precigen, Inc.
- Separate operating performance from the $21.922 million unrealized appreciation in collaborator equity securities when assessing earnings quality.
- Review the terms, allocation and expected recognition period for the $25.0 million Intrexon Energy Partners access fee and the $101.980 million deferred-revenue balance.
- Assess the preliminary accounting for the Medistem acquisition, including the $25.866 million goodwill balance and any subsequent valuation adjustments.
- Monitor AquaBounty regulatory and commercialization progress, ownership-related noncontrolling interests, and the $1.784 million of related long-term debt.
- Evaluate future liquidity requirements, including potential $25.0 million Intrexon Energy Partners contributions, the remaining Ziopharm purchase commitment, research commitments and lease obligations.
- Consider dilution from the 8.550 million outstanding Intrexon stock options at March 31, 2014 and the 972,004 shares issued in the March private placement.