Business Context and Reporting Period
The provided filing is Intrexon Corporation’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. The request identifies the company as Precigen, Inc.; the filing itself names Intrexon Corporation as registrant. Intrexon develops synthetic-biology technologies and commercializes applications primarily through exclusive channel collaborations (ECCs). No treatments or products were in production.
During the period, Intrexon began consolidating AquaBounty Technologies after increasing its ownership to 53.82%, completed its initial public offering, completed a 1-for-1.75 reverse stock split, and converted all outstanding preferred stock into common stock.
Key Financial Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $6.1 million, versus $2.9 million | $16.9 million, versus $7.3 million |
| Collaboration revenue | $6.0 million, up 107.6% | $16.6 million, up 131.3% |
| Research and development expense | $10.8 million, down 25.1% | $35.9 million, down 29.7% |
| General and administrative expense | $7.4 million, up 46.8% | $21.3 million, up 11.4% |
| Operating loss | $12.0 million, versus $16.5 million | $40.3 million, versus $62.9 million |
| Net income (loss) | $15.0 million, versus $(20.5) million | $(27.9) million, versus $(50.9) million |
| Net income (loss) attributable to common shareholders | $8.3 million, or $0.15 per share | $(45.2) million, or $(2.05) per share |
The quarterly operating margin was approximately negative 196%; the nine-month operating margin was approximately negative 239%. Quarterly net income was driven primarily by a $27.3 million unrealized appreciation in equity securities, while nine-month results included a $7.4 million gain on the previously held AquaBounty investment and $5.7 million of unrealized equity-security appreciation.
- Cash and cash equivalents were $61.2 million at September 30, 2013, compared with $10.4 million at December 31, 2012.
- Short-term and long-term investments totaled $217.8 million; cash, cash equivalents and investments totaled approximately $279.0 million.
- Total assets were $474.2 million and total equity was $391.2 million, compared with a total equity deficit of $321.6 million at year-end 2012.
- Deferred revenue was $67.4 million, including $59.994 million classified as long term.
- Debt consisted primarily of AquaBounty obligations: $2.3 million of long-term debt and $0.2 million of current debt. Capital lease obligations totaled $49 thousand.
- Net cash used in operating activities was $43.5 million, compared with $49.2 million in the prior-year period.
- Net cash used in investing activities was $221.7 million, principally reflecting $233.2 million of investment purchases.
- Net cash provided by financing activities was $316.0 million, including $168.8 million of IPO proceeds and $146.9 million of net Series F preferred-stock proceeds.
Material Changes Versus the Prior Comparable Period
- Revenue more than doubled in both the quarter and nine-month period, reflecting increased ECC activity, Fibrocell collaboration revenue, additional collaborations, and recognition of deferred revenue.
- Research and development expense declined due to lower headcount, automation, reduced third-party research, lower laboratory-supply costs, and centralization of research functions.
- General and administrative expense increased, primarily because of public-company preparation costs, additional personnel, and AquaBounty operating costs.
- The company shifted from a substantial equity deficit to positive equity following the IPO and conversion of preferred stock into common stock.
- AquaBounty became consolidated beginning March 15, 2013, adding assets, liabilities, goodwill, intangible assets and noncontrolling interest.
- Investment balances increased substantially as IPO and preferred-financing proceeds were placed into U.S. government securities, commercial paper and certificates of deposit.
- All preferred stock, including $68.9 million of accrued unpaid dividends, converted into 79.7 million common shares upon the IPO.
Guidance, Outlook, Risks and Unusual Items
Management stated that existing cash, cash equivalents, investments and expected collaborator receipts should fund operating and capital requirements for at least the next 12 months. The company also stated that it has incurred significant losses since inception, expects additional significant losses, has never generated royalty revenue from collaborator product sales, and may never achieve profitability.
- Future revenue depends on new ECCs, collaborator development progress, regulatory approvals, product commercialization and potential royalties; timing and magnitude are uncertain.
- Equity securities are carried at fair value, so collaborator share-price volatility can materially affect reported earnings. The company held $107.6 million of such securities at September 30, 2013.
- There were no products in production and no royalty revenue from product sales had been generated.
- Material commitments included approximately $10.9 million of operating and capital lease obligations, $2.8 million of third-party research commitments, and an approximately $19.0 million remaining commitment to participate in future ZIOPHARM financings after an October 2013 purchase.
- The company had obligations under a Halozyme license, including annual exclusivity fees and potential milestone payments of up to $54.0 million, subject to development outcomes.
- The company committed to additional capital contributions to the S&I Ophthalmic joint venture and contributed $5.0 million in October 2013.
- Federal net operating loss carryforwards were approximately $235.1 million and research credits were approximately $6.6 million, subject to potential Section 382 limitations.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no material change to previously disclosed risk factors.
Investor Verification Priorities
- Confirm the registrant identity and corporate-name history, because the supplied metadata refers to Precigen while the filing identifies Intrexon Corporation.
- Separate recurring collaboration revenue and reimbursed research revenue from nonrecurring deferred-revenue recognition and market-value gains.
- Assess the sustainability and valuation volatility of the $107.6 million collaborator-equity portfolio and the related unrealized gains and losses.
- Review AquaBounty’s regulatory prospects, operating losses, debt obligations and the preliminary valuation of acquired intangible assets and goodwill.
- Reconcile the company’s projected cash runway with operating cash usage of $43.5 million for the first nine months and its stated future capital requirements.
- Review dilution from the IPO, preferred-stock conversion, outstanding options and warrants, and potential future equity financings.
- Evaluate contingent commitments, including ZIOPHARM purchases, Halozyme milestones, joint-venture funding and research obligations.