Business Context and Reporting Period
This Form 8-K, filed by Intrexon Corporation on October 5, 2018, reports a material definitive agreement entered into by its wholly owned subsidiary, Precigen, Inc. The filing details an exclusive license agreement with Ziopharm Oncology, Inc., effective October 5, 2018, which supersedes prior channel partner and collaboration agreements.
Key Financial Metrics and Transaction Terms
- Upfront Consideration: Ziopharm agreed to pay an annual license fee of $100,000 and reimburse Precigen for historical costs up to $1.0 million (payable quarterly).
- Milestone Payments: Ziopharm is obligated to make milestone payments totaling up to $52.5 million for each of four exclusively licensed products, with an aggregate potential of $210 million.
- Royalties: Ziopharm will pay tiered royalties ranging from low-single digits to high-single digits on net sales of IL-12 and CAR products. Royalties for TCR products range from low-single digits to mid-single digits, capped at an aggregate of $100.0 million.
- Sublicensing Income: Precigen is entitled to 20% of any sublicensing income received by Ziopharm.
- Cost Sharing: Ziopharm bears all development costs for licensed products except "Gorilla IL-12 Products," where costs are shared (80% Ziopharm, 20% Precigen) and operating profits are split similarly, except in the HPV Field where Ziopharm bears all costs and profits are split equally.
- Asset Forfeiture: Intrexon/Precigen forfeited and returned all shares of Ziopharm's Series 1 Preferred Stock, valued at approximately $156.9 million as of September 30, 2018.
- Reverse Royalties: Precigen will pay Ziopharm royalties ranging from low-single digits to mid-single digits on net sales of Precigen's CAR products, capped at $100 million.
Material Changes Versus Prior Period
The filing represents a significant restructuring of the commercial relationship between Precigen and Ziopharm. Key changes include:
- Termination and replacement of the 2011 Exclusive Channel Partner Agreement and its amendments.
- Termination of the 2016 Securities Issuance Agreement, resulting in the forfeiture of the Series 1 Preferred Stock held by Intrexon.
- Transfer of exclusive, worldwide, royalty-bearing, sub-licensable rights for IL-12, CD19 CAR, and TCR products to Ziopharm.
- Assignment of certain rights and obligations under the Merck Agreement to Precigen, while Ziopharm remains responsible for payments to Ares Trading S.A.
Guidance, Outlook, and Risks
Management Commentary and Outlook: Ziopharm assumes sole responsibility for research, development, and commercialization of the exclusively licensed products. Ziopharm is required to use commercially reasonable efforts to develop IL-12 and CD19 products immediately, and TCR products after a two-year period.
Risks and Contingencies:
- Restrictive Covenants: Precigen is prohibited from using the licensed IP for exclusive cancer products during the term. For three years post-effective date, Precigen cannot research or develop products using regulatable switches for IL-12 or TCR neoantigens for cancer treatment.
- Termination Rights: The agreement may terminate on a product-by-product or country-by-country basis upon patent expiration or 12 years after the first commercial sale. Either party may terminate for material breach, and Ziopharm may terminate on a program-by-program basis with notice.
- Regulatory Dependencies: Milestone payments are contingent upon the initiation of later-stage clinical trials and regulatory approvals in various jurisdictions.
Important Facts for Investor Verification
- Verify the valuation impact of forfeiting the Series 1 Preferred Stock valued at approximately $156.9 million.
- Confirm the specific definitions of "net sales" and the exact royalty tiers in the full text of the License Agreement.
- Monitor Ziopharm's progress on the two-year timeline for TCR product development efforts.
- Review the status of the consent required from Ares Trading S.A. regarding the transfer of rights under the Merck Agreement.
- Assess the financial impact of the $1.0 million historical cost reimbursement and the $100,000 annual license fee on Precigen's cash flow.