SEC Filing Summary
Registrant and period: The filing is Intrexon Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2019, filed May 9, 2019. Precigen, Inc. is a wholly owned clinical-stage biopharmaceutical subsidiary; the consolidated filing is for Intrexon Corporation, not a standalone Precigen filing. The company operated across synthetic biology, biopharmaceuticals, agricultural and environmental products, reproductive technologies, and related collaborations.
Financial Performance and Position
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $23.3 million | $39.7 million | Down 41.2% |
| Operating loss | $58.7 million | $52.7 million | Loss increased $6.1 million |
| Net loss | $62.1 million | $47.4 million | Loss increased $14.7 million |
| Net loss attributable to Intrexon | $60.7 million | $46.2 million | Loss increased $14.5 million |
| Loss per share | $0.40 | $0.36 | Loss increased |
| Operating margin | (251.5%) | (132.7%) | Worsened |
| Net margin | (266.2%) | (119.5%) | Worsened |
| Cash used in operating activities | $43.2 million | $29.9 million | Use increased $13.3 million |
Collaboration and licensing revenue declined 69.9% to $6.0 million, primarily because the company reacquired rights previously licensed to ZIOPHARM and Ares Trading and terminated or restructured other collaborations. Product revenue declined 32.1% to $4.9 million, while service revenue declined 7.1% to $11.4 million. Other revenue increased to $1.1 million from $0.4 million.
Research and development expense was $33.1 million, down 11.3%, and selling, general and administrative expense was $33.6 million, down 15.5%. Despite lower operating expenses, the sharper revenue decline caused the operating loss to widen. Interest expense increased to $4.3 million, including $2.2 million of noncash amortization related to debt discounts and financing costs. The prior-year period included significant preferred-stock dividend income that did not recur.
Cash, Debt, and Liquidity
- Cash and cash equivalents were $106.5 million at March 31, 2019, and short-term investments were $75.1 million, for combined liquidity of $181.6 million.
- Total assets were $709.9 million and total liabilities were $375.0 million. Total equity was $334.8 million.
- Long-term debt was $214.0 million, including the $200.0 million principal amount of 3.5% convertible notes due July 2023, carried at $150.3 million after discounts and issuance costs.
- Operating lease liabilities totaled $45.0 million following adoption of ASC 842, including $4.8 million current and $40.2 million long term.
- Operating cash burn was partly offset by $33.6 million of investing cash inflow, primarily $45.0 million from maturities of short-term investments. Financing activities provided $6.9 million, including $6.6 million of net proceeds from an AquaBounty public offering.
- Management stated that recurring losses and negative cash flows are expected to continue and that existing cash and short-term investments are not sufficient to fund planned operations for one year after issuance of the financial statements. The filing therefore identifies substantial doubt about the company’s ability to continue as a going concern.
Material Changes Versus the Prior Period
- Total revenue fell $16.3 million, driven primarily by the reduction in collaboration and licensing revenue.
- Operating cash use increased $13.3 million because of higher clinical-program spending and the loss of research and development reimbursements associated with reacquired collaborations.
- Research and development spending shifted toward internally controlled programs: spending on specific partner applications declined to $9.3 million from $18.3 million, while spending on platform development and company product offerings increased.
- Stock-based compensation declined to $9.1 million from $11.4 million, and depreciation and amortization declined to $6.6 million from $8.4 million.
- The company adopted ASC 842 and recorded approximately $43.5 million of right-of-use assets and $45.5 million of lease liabilities at January 1, 2019.
- In April 2019, AquaBounty completed an offering of approximately $6.5 million gross proceeds. Intrexon expected to lose contractual control of AquaBounty’s board and deconsolidate AquaBounty beginning in the second quarter.
- In April 2019, management announced a planned realignment into Intrexon Health and Intrexon Bioengineering, with a greater focus on healthcare, partnering, asset sales, and cost reductions.
Outlook, Risks, and Unusual Items
The filing provides no formal revenue or earnings guidance. Management expects continued operating losses and negative cash flows and may need additional equity or debt financing, strategic collaborations, asset monetizations, subsidiary sales, spending reductions, or delayed capital expenditures. Failure to obtain funding could require significant operational reductions or a shutdown of operations.
- The company’s strategy is shifting from primarily exclusive channel collaborations toward greater ownership and control of internally developed programs, increasing its funding obligations and execution risk.
- Future revenue depends on regulatory approvals, product commercialization, collaboration payments, customer demand, and the ability to scale product and service offerings.
- Outstanding contractual obligations included approximately $79.6 million of operating leases, $16.5 million of purchase commitments, $255.5 million of convertible debt obligations, $31.5 million of cash interest on convertible debt, and $14.6 million of remaining joint-venture capital contribution commitments.
- Trans Ova’s litigation with XY resulted in revised royalty rates in March 2019, including an 18.75% rate on semen-sorting products and additional minimum royalties. The company recorded approximately $0.1 million of estimated incremental royalty expense for the period from February 2016 through December 2018.
- The company had approximately $460.7 million of U.S. federal net operating loss carryforwards and $8.3 million of federal and state research and development tax credits, subject to potential Section 382 limitations.
- Approximately 44% ownership of AquaBounty exposed the company to equity-price volatility; the investment’s fair value was $18.0 million at March 31, 2019.
Investor Verification Points
- Verify that the applicable investment is Intrexon Corporation rather than standalone Precigen, Inc., and assess the effect of the expected AquaBounty deconsolidation.
- Assess funding requirements and the going-concern risk in light of $43.2 million of quarterly operating cash burn, $181.6 million of cash and short-term investments, and substantial debt and lease obligations.
- Determine whether the decline in collaboration revenue is structural following the reacquisition of rights and whether internally controlled programs can generate future commercial or partnering revenue.
- Review the terms, conversion features, and maturity profile of the convertible notes, particularly the $200.0 million notes due in 2023 and the $30.5 million ActoBio-related note.
- Monitor the planned business realignment, potential asset sales and cost reductions, and any resulting impairment, dilution, or disruption.
- Follow the XY litigation and revised royalty obligations, as well as regulatory and commercialization developments affecting Precigen, Oxitec, AquaBounty, and other subsidiaries.