Business Context and Reporting Period
The filing is Intrexon Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2014. Although the request metadata identifies Precigen, Inc., the filing itself identifies the registrant as Intrexon Corporation. Intrexon develops synthetic-biology technologies and commercializes applications primarily through exclusive channel collaborations, or ECCs, across healthcare, food, energy, environmental and consumer markets. No products arising from its collaborations had been commercialized as of June 30, 2014.
At June 30, 2014, Intrexon owned approximately 60% of AquaBounty Technologies and 51% of BioPop and accounted for three joint ventures using the equity method.
Financial Performance and Position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $11.8 million, versus $6.7 million | $19.6 million, versus $10.6 million |
| Operating loss | $18.1 million, versus $14.3 million | $36.0 million, versus $28.3 million |
| Net loss | $52.9 million, versus $6.5 million | $49.7 million, versus $42.9 million |
| Net loss attributable to Intrexon | $52.0 million, versus $6.0 million | $47.9 million, versus $42.3 million |
| Loss per common share | $0.53, versus $2.45 | $0.49, versus $10.00 |
| Net cash used in operating activities | Not separately provided | $4.2 million, versus $27.6 million |
- Collaboration revenue increased 76.3% in the quarter and 86.0% for the six-month period. Research and development service revenue was the principal driver of the increase.
- Research and development expense increased 7.2% in the quarter and 6.6% year to date. General and administrative expense increased 107.0% in the quarter and 108.6% year to date, principally due to public-company staffing, stock-based compensation, acquisition activity and professional fees.
- Operating margin was approximately negative 153% for the quarter and negative 183% year to date. Net margin was approximately negative 449% for the quarter and negative 253% year to date, substantially affected by equity-security valuation losses.
- Unrealized depreciation in equity securities was $33.8 million in the quarter and $11.9 million year to date, compared with unrealized appreciation of $7.7 million and depreciation of $21.6 million in the comparable 2013 periods.
- Cash and cash equivalents totaled $74.5 million at June 30, 2014. Short-term and long-term investments totaled $174.6 million, resulting in cash, cash equivalents and investments of approximately $249.1 million.
- Total assets were $500.5 million, total liabilities were $112.2 million and total equity was $388.4 million. Long-term debt was $2.0 million, consisting primarily of AquaBounty-related obligations.
- Deferred revenue increased to $99.5 million from $73.6 million at December 31, 2013, primarily reflecting upfront and milestone consideration from collaborations that will be recognized over future periods.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected recognition of deferred revenue and increased reimbursable research and development activity from 11 collaborations or expansions entered into between July 1, 2013 and June 30, 2014.
- Quarterly net loss increased sharply because of a $33.8 million unrealized loss on equity securities, compared with a $7.7 million unrealized gain in the second quarter of 2013. The six-month net loss increased 15.9% despite lower year-to-date unrealized investment losses.
- Operating losses widened as total operating expenses grew faster than revenue. General and administrative expense was particularly higher following the company’s transition to a public-company operating structure.
- Operating cash burn improved to $4.2 million from $27.6 million, primarily because of a $25.0 million technology access fee received from Intrexon Energy Partners and increased deferred revenue.
- Investing cash flow changed to a $3.3 million source from a $95.3 million use. Investment maturities of $73.7 million exceeded new investment purchases of $60.5 million.
- Intrexon acquired Medistem on March 6, 2014 for preliminary consideration of $25.0 million, including $4.9 million in cash, $19.4 million in common stock and settlement of $0.7 million in promissory notes. The acquisition added $21.0 million of goodwill.
- Intrexon increased its AquaBounty ownership to 59.85% through a $10.0 million private subscription in March 2014.
- The company completed a $25.0 million private placement of common stock in March 2014 and received $1.0 million from stock-option exercises. Shares outstanding increased to 99.0 million at June 30, 2014 from 97.1 million at December 31, 2013.
Guidance, Outlook, Risks and Unusual Items
Management stated that existing cash, investments and expected collaborator payments were expected to fund operating expenses and capital expenditures for at least the next 12 months. Management also expects significant losses and substantial capital requirements to continue and acknowledged that the company may never achieve profitability or generate royalty revenue from commercialized collaborator products.
- Future funding needs depend on research and development spending, collaboration payments, regulatory progress, product sales, acquisitions, legal costs and potential investment commitments.
- Intrexon retained an approximately $19.0 million commitment to purchase additional Ziopharm securities, subject to conditions and limitations.
- Intrexon committed up to $25.0 million in additional capital contributions to Intrexon Energy Partners, subject to the joint venture agreement and board requests. Additional contributions to other joint ventures may also be required or elected.
- Research and development commitments totaled $2.6 million, of which approximately $1.0 million had not yet been incurred. Operating lease commitments totaled $18.0 million.
- The company’s equity-security portfolio is exposed to significant stock-price volatility. A hypothetical 20% decrease in the portfolio’s value would reduce its fair value to approximately $107.9 million, based on the filing’s sensitivity analysis.
- Intrexon had approximately $249.6 million of federal net operating-loss carryforwards and approximately $7.0 million of federal and state research and development tax credits, subject to potential limitations under Section 382.
- Effective August 8, 2014, after the reporting date, Intrexon acquired Trans Ova Genetics for $60.0 million in cash, 1,444,388 common shares and $20.0 million of deferred cash payable in three annual installments. The transaction also includes potential payments related to governmental debts and pending litigation.
- The filing reports no additional material risk-factor changes from the 2013 Form 10-K except risks associated with integrating and realizing benefits from the Trans Ova acquisition, including possible litigation, impairment, customer and supplier issues, and retention of key personnel.
Most Important Facts for Investors to Verify
- Confirm the registrant’s identity: the supplied filing is for Intrexon Corporation, not Precigen, Inc.
- Assess the sustainability and timing of collaboration revenue, particularly the $99.5 million deferred-revenue balance and the reliance on upfront payments and reimbursed research activity.
- Separate recurring operating performance from volatile fair-value gains and losses on collaborator equity securities.
- Evaluate cash runway after the Trans Ova acquisition, including the $60.0 million cash payment, $20.0 million deferred consideration and potential contingent payments.
- Review dilution risk from outstanding options, warrants, private placements, acquisition shares and possible future equity financing.
- Review the company’s obligations to fund joint ventures, the remaining Ziopharm purchase commitment, research commitments and AquaBounty-related debt and royalty obligations.
- Verify regulatory and commercialization progress for AquaBounty and other collaborator programs, since no collaboration-derived products had been commercialized as of June 30, 2014.