Business Context and Reporting Period
This unaudited Form 10-Q covers Intrexon Corporation and its subsidiaries for the three months ended March 31, 2016. The request identifies the company as Precigen, Inc., but the filing itself identifies the registrant as Intrexon Corporation; this naming discrepancy should be verified.
Intrexon operated as a synthetic biology company using exclusive channel collaborations, licensing arrangements, joint ventures, acquisitions, and directly sold products and services across health, food, energy, environmental, and consumer markets. The filing states that no commercialized products derived from Intrexon collaborations had been launched as of March 31, 2016.
Financial Performance and Position
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total revenue | $43.4 million | $33.8 million | +28.3% |
| Collaboration and licensing revenue | $24.1 million | $14.8 million | +62.8% |
| Product revenue | $8.6 million | $8.9 million | -4.2% |
| Service revenue | $10.7 million | $10.0 million | +7.1% |
| Operating loss | $40.5 million | $87.1 million | Improved by $46.6 million |
| Operating margin | -93.3% | -257.4% | Improved |
| Net income (loss) | $(65.3) million | $25.8 million | Declined by $91.1 million |
| Net loss attributable to Intrexon | $(64.4) million | $27.1 million | Declined by $91.5 million |
| Loss per diluted share | $(0.55) | $0.25 | Unfavorable change |
Collaboration and licensing revenue increased primarily from recognition of deferred revenue associated with the Ares Trading collaboration and other collaborations entered into after March 31, 2015, together with increased research and development services. Product revenue declined because of lower livestock demand and pricing, while service revenue benefited from increased in-vitro-fertilization cycles.
Research and development expense was $25.9 million, down 67.4% from $79.3 million, largely because Q1 2015 included a $59.6 million stock-based payment for an exclusive MD Anderson license. Selling, general and administrative expense increased 55.2% to $42.9 million, reflecting higher personnel and stock compensation costs, professional fees, acquisition-related operating costs, and $4.2 million of litigation settlement expense related to the XY, LLC matter.
Other expense was $21.4 million in Q1 2016 versus other income of $115.7 million in Q1 2015. The change was primarily due to a $22.3 million unrealized decline in equity securities in 2016 compared with a $115.5 million unrealized appreciation in 2015. Equity in losses of affiliates increased to $5.6 million from $2.0 million.
Cash and cash equivalents were $145.7 million at March 31, 2016, compared with $135.8 million at December 31, 2015. Short-term and long-term investments totaled $190.2 million, down from $208.0 million. Total assets were $962.4 million and total equity was $674.8 million.
| Cash flow | Q1 2016 | Q1 2015 |
|---|---|---|
| Operating activities | $(3.6) million | $(13.0) million |
| Investing activities | $3.9 million | $(26.0) million |
| Financing activities | $9.6 million | $110.7 million |
| Net change in cash | $10.0 million | $71.5 million |
Total debt was approximately $9.0 million, consisting of $0.5 million drawn under a line of credit and $8.5 million of long-term debt. The company reported $15.8 million of deferred consideration and $210.2 million of deferred revenue, including $194.8 million related to upfront and milestone payments. Management stated that available cash, investments, expected collaborator receipts, and subsidiary product and service receipts were expected to fund operating and capital requirements for at least the next 12 months.
Material Changes Versus the Prior Comparable Period
- Revenue increased 28.3%, led by a 62.8% increase in collaboration and licensing revenue.
- Operating loss narrowed substantially because Q1 2015 included the $59.6 million MD Anderson stock-based license payment.
- Net results shifted from $27.1 million of income attributable to Intrexon to a $64.4 million loss, driven primarily by the reversal from substantial unrealized equity gains to unrealized equity losses.
- SG&A increased by $15.3 million, including higher compensation, professional fees, acquisition-related costs, and the $4.2 million XY litigation settlement expense.
- Operating cash use improved by $9.4 million year over year, while financing cash inflow fell sharply because Q1 2015 included $110.0 million of public-offering proceeds.
- The company formed or expanded several collaborations and joint ventures, including Intrexon T1D Partners, Exotech Bio, Relieve Genetics, and New EnviroFlight.
- In February 2016, the company acquired substantially all assets of Old EnviroFlight for $4.2 million in cash, 136,340 shares valued at $4.4 million, and contingent consideration initially estimated at $3.7 million.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expected continued significant losses and substantial capital requirements and stated that the company might never achieve or maintain profitability. Future results depend heavily on entering and maintaining collaborations, the development and regulatory approval of collaborator products, commercialization by subsidiaries, product and service demand, equity market values, acquisitions, and access to additional financing.
The company had approximately $36.7 million of remaining capital contribution commitments to joint ventures, $9.0 million of unincurred third-party research and development commitments, $14.5 million of operating lease obligations, and $40.5 million of listed contractual obligations including deferred consideration, debt, leases, and contingent consideration.
Trans Ova was involved in the XY, LLC licensing and patent litigation. A February 2016 jury decision found breaches by both parties and infringement by Trans Ova. An April 2016 court order awarded $6.1 million to XY and $0.5 million to Trans Ova, with prejudgment interest. The company recorded $4.2 million of litigation settlement expense but intended to pursue appellate remedies; the ultimate outcome remained uncertain.
Two purported shareholder class actions were filed in May 2016 alleging materially false or misleading statements during the relevant class period. The company considered the claims without merit but could not predict the outcome.
Equity securities were subject to substantial market-price volatility. The fair value of these securities was $61.3 million at March 31, 2016 versus an aggregate cost basis of $107.2 million. The company also owned approximately 63% of AquaBounty, whose valuation and commercialization prospects were subject to regulatory and market risks.
U.S. federal net operating loss carryforwards were approximately $258.6 million, and foreign loss carryforwards were approximately $118.8 million. Utilization may be restricted by ownership-change limitations under Section 382.
Most Important Facts for Investors to Verify
- Confirm the registrant identity and whether the filing relates to Intrexon Corporation or Precigen, Inc.
- Assess the sustainability and collectability of collaboration and licensing revenue, including the $210.2 million deferred-revenue balance.
- Separate recurring operating performance from noncash equity-security gains and losses and unusual items such as the $59.6 million 2015 license payment and $4.2 million litigation expense.
- Review cash-burn trends, joint-venture funding commitments, research commitments, deferred consideration, and potential financing needs.
- Monitor regulatory progress and commercialization prospects for products involving AquaBounty, Oxitec, Okanagan, EnviroFlight, and other subsidiaries or collaborators.
- Track the XY litigation, shareholder class actions, related-party arrangements, and the potential effect of contingent consideration and appeals.
- Evaluate dilution risk from stock-based compensation, option exercises, collaboration or acquisition consideration, and potential future equity financing.