Business Context and Reporting Period
The filing is Intrexon Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2015. The request metadata identifies Precigen, Inc., but the filing itself identifies the registrant as Intrexon Corporation. Intrexon develops synthetic-biology technologies and commercializes potential products through exclusive channel collaborations, joint ventures, acquisitions, and consolidated operating businesses. No products derived from its collaborations had been commercialized as of March 31, 2015.
Key Financial Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenue | $33.8 million | $7.9 million | Up 331% |
| Collaboration revenue | $14.7 million | $7.8 million | Up 88% |
| Product revenue | $8.9 million | None reported | Primarily livestock sales |
| Service revenue | $10.0 million | None reported | Primarily reproductive services |
| Operating loss | $87.1 million | $17.9 million | Loss increased $69.3 million |
| Net income | $25.8 million | $3.2 million | Up $22.6 million |
| Net income attributable to Intrexon | $27.1 million | $4.1 million | Up $23.0 million |
| Diluted earnings per share | $0.25 | $0.04 | Improved |
| Net cash used in operating activities | $13.0 million | Net cash provided of $9.5 million | Declined $22.5 million |
Approximate total-revenue margins were negative 257% for operating income and positive 76% for net income in Q1 2015, compared with negative 228% and positive 41%, respectively, in Q1 2014. Net income was driven primarily by noncash unrealized appreciation in equity securities rather than operating profitability.
- Unrealized appreciation in equity securities was $115.5 million, compared with $21.9 million in Q1 2014.
- Research and development expense was $79.3 million, including a $59.6 million noncash charge for shares issued to MD Anderson for licensed technologies.
- Selling, general and administrative expense was $27.6 million, including substantial personnel, stock-based compensation, acquisition, legal, and professional costs.
- Stock-based compensation expense was $10.3 million, compared with $3.8 million in Q1 2014.
- Cash and cash equivalents were $99.0 million at March 31, 2015, compared with $27.5 million at December 31, 2014. Short- and long-term investments totaled $91.5 million.
- Total assets were $820.0 million and total equity was $653.3 million at March 31, 2015.
- Total debt, including current and long-term portions, was $9.7 million; lines of credit totaled $0.6 million.
- Deferred revenue was $111.3 million, including $104.3 million of deferred upfront and milestone payments.
Material Changes Versus the Prior Comparable Period
- Revenue increased substantially because of higher collaboration activity and the inclusion of product and service revenue from Trans Ova, acquired in August 2014.
- Operating expenses grew faster than revenue, primarily because of the MD Anderson license, expanded research programs, acquired operations, higher headcount, and increased stock-based compensation.
- Operating cash flow turned negative as the company funded increased research and development and absorbed working-capital changes.
- The company raised $110.0 million net in a January 2015 public offering and issued additional shares for the ActoGeniX and Exemplar acquisitions and the MD Anderson license.
- Equity securities increased to $294.9 million from $164.9 million at year-end 2014, with the increase reflecting both purchases and market appreciation, particularly in ZIOPHARM holdings.
- ActoGeniX was acquired in February 2015 for $32.7 million in cash and 965,377 shares, with preliminary total consideration of $72.5 million.
- The company acquired the remaining interests in Exemplar for $1.6 million in cash and 307,074 shares.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management did not provide specific revenue, earnings, or cash-flow guidance. Management stated that existing cash, investments, and expected receipts from collaborators and operating subsidiaries should fund operating expenses and capital expenditures for at least the next 12 months, but acknowledged that actual capital needs may be greater than estimated.
- In March 2015, Intrexon signed a collaboration with Merck KGaA’s Ares Trading and ZIOPHARM. Subject to regulatory approval and effectiveness, Intrexon expects a $115.0 million upfront payment, up to $826.0 million in potential development and commercial milestones, and royalties. Intrexon will pay ZIOPHARM 50% of payments received under the arrangement.
- In April 2015, the company acquired Okanagan Specialty Fruits for approximately $10.0 million in cash and 707,853 shares. The acquisition was not included in the March 31 balance sheet or contractual-obligation table.
- In May 2015, the board approved distribution of 17.8 million ZIOPHARM shares to Intrexon shareholders, expected before the end of Q2 2015. This could materially change the company’s equity-securities portfolio and future unrealized gains or losses.
- The fair value of equity securities is highly volatile. A hypothetical 10% increase or 20% decrease in the portfolio value would have produced an estimated fair value of approximately $324.4 million or $235.9 million, respectively, at March 31, 2015.
- Remaining commitments included $22.9 million of potential capital contributions to Intrexon Energy Partners and $6.8 million of unincurred third-party research and development commitments.
- Contractual obligations totaled $43.5 million, consisting primarily of operating leases, deferred consideration, and long-term debt.
- Trans Ova was defending a patent and licensing dispute brought by XY, Inc.; management considered the claims without merit but could not assure a favorable outcome.
- The company had approximately $281.1 million of U.S. federal net operating loss carryforwards and $6.8 million of federal and state research and development credits, subject to potential Section 382 limitations.
- Key risks include continued operating losses, dependence on collaborators for development and regulatory approvals, lack of commercialized collaboration products, equity-market volatility, acquisition and integration risk, intellectual-property disputes, regulatory uncertainty, and possible future equity financing and dilution.
Most Important Facts for Investors to Verify
- Confirm that the filing and financial statements relate to Intrexon Corporation, not Precigen, Inc., and verify any successor or name-change relationship.
- Separate recurring operating performance from the $115.5 million noncash equity-security gain that drove Q1 net income.
- Assess whether the $111.3 million deferred-revenue balance will convert to revenue over expected performance periods and whether collaborators will fund reimbursable research programs.
- Review the effectiveness, regulatory conditions, payment timing, and revenue-sharing provisions of the Merck-Ares Trading-ZIOPHARM agreement.
- Evaluate liquidity after the Okanagan acquisition, planned ZIOPHARM share distribution, ongoing operating cash burn, acquisitions, and potential joint-venture funding commitments.
- Monitor the market value and concentration of equity securities, particularly ZIOPHARM, because valuation changes materially affect reported earnings.
- Review acquisition accounting, preliminary valuations, goodwill, in-process research and development, and integration controls for ActoGeniX, Trans Ova, Exemplar, and Okanagan.