SEC Form 10-Q Summary
Filing identity: The supplied filing is for Intrexon Corporation, not Precigen, Inc. It covers the quarter and nine months ended September 30, 2014. The financial statements are unaudited and prepared under U.S. GAAP.
Business context and reporting period
Intrexon develops synthetic-biology technologies through exclusive channel collaborations, joint ventures and research collaborations across healthcare, food, energy, environmental and consumer applications. The company states that no products derived from its collaborations had been commercialized as of the filing date. Trans Ova Genetics, acquired in August 2014, contributed bovine reproductive technology products and services.
At September 30, 2014, Intrexon reported 23 active ECCs, including four expansions, and one research collaboration that could become an ECC. The company consolidated Trans Ova beginning August 8, 2014, and Medistem beginning March 6, 2014.
Financial performance and key metrics
| Metric | Three months ended September 30, 2014 | Three months ended September 30, 2013 | Nine months ended September 30, 2014 | Nine months ended September 30, 2013 |
|---|---|---|---|---|
| Total revenue | $21.2 million | $6.0 million | $40.8 million | $16.6 million |
| Collaboration revenue | $12.7 million | $6.0 million | $32.3 million | $16.6 million |
| Product and service revenue | $8.4 million | None reported | $8.4 million | None reported |
| Operating loss | $(15.0) million | $(12.0) million | $(51.0) million | $(40.3) million |
| Operating margin | (71.0%) | (199.2%) | (124.9%) | (242.5%) |
| Net loss attributable to Intrexon | $(52.7) million | $15.5 million income | $(100.7) million | $(26.8) million |
| Net margin attributable to Intrexon | (248.7%) | 256.5% | (246.5%) | (161.2%) |
| Loss per common share | $(0.53) | $0.15 | $(1.02) | $(2.05) |
Revenue growth was driven by recognition of deferred upfront consideration and increased reimbursed research and development services from newer and existing collaborations, as well as product and service revenue from Trans Ova. Product and service costs were $6.5 million in the third quarter and $6.6 million for the nine-month period.
Research and development expense was $14.9 million in the quarter and $41.3 million for the nine months, compared with $10.7 million and $35.6 million, respectively, in the prior-year periods. Selling, general and administrative expense was $14.9 million in the quarter and $43.9 million for the nine months, compared with $7.4 million and $21.3 million, respectively.
Results were materially affected by unrealized depreciation in collaborator equity securities of $37.1 million in the quarter and $48.9 million for the nine months, compared with unrealized appreciation of $27.3 million and $5.7 million in the comparable 2013 periods. Equity in losses of affiliates was $1.6 million in the quarter and $3.5 million for the nine months.
Cash flow, liquidity and capital structure
- Cash and cash equivalents were $24.7 million at September 30, 2014, down from $49.5 million at December 31, 2013.
- Short-term and long-term investments totaled $149.8 million, down from $188.6 million at year-end 2013. Cash plus investments totaled approximately $174.5 million.
- Operating cash flow was $(10.8) million for the nine months, compared with $(43.5) million in the prior-year period.
- Investing cash flow was $(36.5) million, including $67.1 million for acquisitions, $60.5 million of investment purchases and $5.2 million of capital expenditures.
- Financing cash flow was $22.6 million, primarily from a $25.0 million private placement and $1.3 million of option exercises, partially offset by line-of-credit repayments.
- Total debt and lines of credit were approximately $11.0 million, including $556,000 drawn under a revolving line of credit and $10.9 million of long-term debt. The company reported $10.0 million of additional availability under Trans Ova’s credit facility.
- Deferred revenue was $109.9 million, including $95.9 million classified as long term, compared with $73.6 million at December 31, 2013.
- Accumulated deficit was $477.1 million at September 30, 2014.
Management stated that existing cash, investments, expected collaborator receipts and revenues from consolidated subsidiaries should fund operating expenses and capital expenditures for at least the next 12 months. This assessment depends on assumptions regarding collaboration payments, subsidiary performance, development spending and acquisition activity.
Material changes versus the prior comparable period
- Quarterly revenue increased 250.8% to $21.2 million; nine-month revenue increased 145.8% to $40.8 million.
- Collaboration revenue increased 110.0% in the quarter and 94.7% for the nine months, primarily from 11 collaborations or expansions signed between October 2013 and September 2014 and additional services performed.
- Trans Ova added $8.5 million of product and service revenue after its August 2014 acquisition and increased assets, liabilities, goodwill and operating costs.
- The company acquired Trans Ova for total consideration of $123.5 million, including $63.2 million cash, common stock and $20.1 million of deferred consideration. It also acquired Medistem for $25.0 million.
- Goodwill increased from $13.8 million to $98.8 million, primarily from the acquisitions. Intangible assets increased from $42.0 million to $68.2 million.
- Operating losses widened in absolute dollars despite higher revenue, while stock-based compensation increased to $14.9 million for the nine months from $1.8 million.
- The company shifted from a $15.5 million quarterly attributable profit in 2013 to a $52.7 million attributable loss in 2014, principally because of the unfavorable change in fair value of equity securities.
- The company formed Intrexon Energy Partners and received a $25.0 million upfront technology access fee. It retained a potential additional capital contribution commitment of $24.4 million at September 30, 2014.
Guidance, outlook, risks and unusual items
The filing does not provide formal revenue, earnings or cash-burn guidance. Management expects continued significant losses and states that the company may never achieve profitability or generate royalty revenue from collaborator product sales.
- Future revenue depends on new ECCs, collaborator development and regulatory progress, product commercialization, Trans Ova performance and potential AquaBounty approvals.
- Equity securities are carried at fair value, creating substantial earnings volatility. A hypothetical 20% decline in those investments would have reduced their September 30, 2014 value by approximately $19.6 million.
- The company has never generated royalty revenue from collaborator product sales and relies on upfront payments, reimbursements, investments, financing and consolidated subsidiary revenues.
- Material commitments include $17.2 million of operating leases, $20.3 million of deferred acquisition consideration and $9.0 million of scheduled long-term debt maturities.
- Additional potential obligations include up to $19.0 million of purchases of Ziopharm securities, up to $15.0 million of Histogenics securities, $24.4 million of Intrexon Energy Partners funding, research and development commitments of $3.2 million, and contingent payments related to ViaGen and Trans Ova litigation.
- Trans Ova was defending a patent and licensing dispute brought by XY, Inc.; trial was scheduled for late 2014. Management believed the claims were without merit but could not assure a favorable outcome.
- The company held approximately $250.2 million of federal net operating loss carryforwards and $7.0 million of research and development tax credits, subject to potential Section 382 limitations.
- The company expected to cease being an emerging growth company as of December 31, 2014, resulting in reduced eligibility for certain reporting exemptions.
Most important facts for investors to verify
- Confirm the issuer identity: the provided filing is for Intrexon Corporation, whereas the request identifies Precigen, Inc.
- Assess the sustainability and quality of collaboration revenue, including the amount recognized from deferred upfront payments versus reimbursed services.
- Evaluate the effect of Trans Ova and Medistem integration on recurring revenue, margins, cash requirements and acquisition-related accounting estimates.
- Reconcile the large net loss with the $48.9 million unrealized decline in collaborator equity securities and consider potential future market-value volatility.
- Review liquidity after acquisitions, scheduled debt and deferred consideration payments, and potential joint-venture and equity-purchase commitments.
- Monitor regulatory, commercialization and royalty prospects for AquaBounty and other collaborator programs.
- Review the XY, Inc. litigation and other contingent obligations, including the potential impact of adverse outcomes.