SEC Filing Summary
Registrant and period: The provided filing is Intrexon Corporation’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015, filed November 9, 2015. The request metadata identifies Precigen, Inc., but the filing text identifies the registrant as Intrexon Corporation.
Business Context
Intrexon develops synthetic biology technologies and commercializes applications through exclusive channel collaborations, licensing agreements, joint ventures and acquired operating businesses. Its activities span healthcare, food, energy, environment and consumer markets. The filing states that no commercialized products derived from its collaborations had generated royalty revenue to date. Consolidated operations included Trans Ova, ViaGen, Exemplar, Okanagan, Oxitec, AquaBounty and other subsidiaries.
Key Financial Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $53.4 million, versus $21.2 million in 2014 | $132.1 million, versus $40.8 million in 2014 |
| Operating loss | $7.9 million, versus $15.0 million | $112.5 million, versus $51.0 million |
| Net loss | $39.0 million, versus $53.9 million | $54.7 million, versus $103.5 million |
| Net loss attributable to Intrexon | $38.2 million, or $0.34 per share | $51.8 million, or $0.47 per share |
| Operating margin | Approximately negative 14.8% | Approximately negative 85.1% |
| Net margin | Approximately negative 73.1% | Approximately negative 41.4% |
| Operating cash flow | Not separately provided for the quarter | $23.3 million provided, versus $10.8 million used in 2014 |
- Quarterly revenue growth was driven by collaboration and licensing revenue of $34.7 million, product revenue of $9.4 million and service revenue of $8.9 million.
- Nine-month collaboration and licensing revenue increased to $66.7 million, including $39.4 million of research and development reimbursements and $27.3 million of upfront and milestone revenue.
- Research and development expense increased to $21.6 million for the quarter and $121.3 million for the nine months. The nine-month amount included $59.6 million of common stock issued to MD Anderson for an exclusive technology license.
- Selling, general and administrative expense was $23.0 million for the quarter and $74.3 million for the nine months.
- Cash and cash equivalents were $125.4 million at September 30, 2015, compared with $27.5 million at December 31, 2014. Short- and long-term investments totaled $227.1 million, producing cash, cash equivalents and investments of approximately $352.6 million.
- Total assets were $989.9 million and total liabilities were $260.3 million. Deferred revenue totaled $176.3 million, including $144.2 million classified as long term.
- Total debt was approximately $9.6 million, consisting of $0.5 million of lines of credit and $9.1 million of long-term debt. Deferred consideration totaled $24.9 million.
- Accumulated deficit was $510.0 million. Shares outstanding increased to 116.4 million from 100.6 million at December 31, 2014.
Material Changes Versus the Prior Comparable Period
- Total revenue increased 151.8% in the quarter and more than tripled for the nine-month period, primarily reflecting the Trans Ova acquisition, increased collaboration activity and additional product and service revenue.
- Quarterly operating loss narrowed despite higher expenses, but the nine-month operating loss more than doubled because of expanded research and development, corporate expenses, acquisitions and the MD Anderson license payment.
- Net loss improved substantially because 2015 included a $81.4 million realized gain from distributing all ZIOPHARM shares to Intrexon shareholders and lower equity-security depreciation. These benefits were partly offset by $30.5 million of quarterly equity-security depreciation.
- Operating cash flow turned positive, while investing cash use increased to $257.3 million, including $114.5 million for acquisitions, $181.6 million for investments, $17.1 million for collaborator securities and $9.8 million for property and equipment.
- Financing cash flow increased to $331.4 million, principally from $328.2 million of net proceeds from January and August public offerings.
- The company acquired ActoGeniX for $72.5 million, Okanagan for $40.9 million and Oxitec for $146.4 million of total consideration. Oxitec added approximately $51.3 million of goodwill and $96.9 million of intangible assets on a preliminary basis.
Outlook, Risks and Unusual Items
- Management expects continued significant losses and substantial capital requirements, and states that profitability may never be achieved. It believes existing cash, investments and expected operating receipts can fund requirements for at least the next 12 months, subject to assumptions that may prove incorrect.
- Future revenue depends on new collaborations, program advancement, regulatory approvals, commercialization by collaborators, product and service sales, and potential royalties. The company had not generated royalty revenue from collaborator product sales.
- Contractual obligations included $15.8 million of operating leases, $24.9 million of deferred consideration and $7.3 million of scheduled long-term debt payments. The company also had $6.6 million of unincurred research and development commitments and a remaining capital commitment of $20.4 million to Intrexon Energy Partners.
- A Trans Ova subsidiary faced patent and licensing litigation brought by XY, Inc.; trial was scheduled for the first half of 2016. Management believed the claims were without merit but could not assure a favorable outcome.
- Oxitec integration creates risks involving disruption, unanticipated expenses, customer and supplier relationships, litigation, goodwill and intangible-asset impairment, and employee retention.
- AquaBounty may require additional capital. Management indicated that its cash resources were expected to support operations only into early 2016 at the then-current spending rate; Intrexon had no contractual obligation to fund it.
- Equity securities were carried at fair value and remained subject to significant market volatility. A hypothetical 20% decline in the portfolio value at September 30, 2015 would have reduced the reported value by approximately $15.3 million, before considering other effects.
- The company distributed its ZIOPHARM investment as a special stock dividend, issued substantial equity in acquisitions and financings, and incurred significant stock-based compensation of $26.5 million for the nine months.
- Subsequent to quarter-end, Intrexon entered into a services agreement with Third Security for $0.8 million per month payable in fully vested shares and established a CEO compensation arrangement of $0.2 million per month payable in shares.
Investor Verification Checklist
- Verify the registrant identity and whether the filing should be attributed to Intrexon Corporation or the company identified in the request metadata.
- Reconcile revenue growth with acquisition-related consolidation, deferred-revenue recognition, collaboration terminations and nonrecurring upfront or milestone items.
- Assess the sustainability of positive operating cash flow excluding large noncash gains, stock issuance, deferred revenue movements and other working-capital effects.
- Review liquidity after acquisitions, investment purchases, deferred consideration, joint-venture commitments and potential AquaBounty funding needs.
- Evaluate the carrying values and volatility of equity securities, goodwill, acquired intangible assets and in-process research and development.
- Review the Oxitec acquisition accounting, integration progress and any subsequent impairment or litigation developments.
- Monitor collaboration counterparties, regulatory approvals, commercialization milestones and the absence of royalty revenue to date.
- Review the XY, Inc. litigation, contingent consideration obligations, tax-loss utilization limits and related-party transactions with Third Security and affiliates.