Business Context and Reporting Period
The filing is Intrexon Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2017. The request identifies Precigen, Inc., but the supplied filing is for Intrexon Corporation, so the issuer identity should be verified. Intrexon develops synthetic-biology technologies through exclusive channel collaborations, licensing arrangements, joint ventures, and operating subsidiaries, including Trans Ova, Oxitec, Okanagan, ViaGen, and AquaBounty. No products derived from Intrexon collaborations had been commercialized as of March 31, 2017.
Key Financial Metrics
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Total revenue | $53.7 million | $43.4 million | 23.7% increase |
| Collaboration and licensing revenue | $33.1 million | $24.1 million | 37.4% increase |
| Product revenue | $8.1 million | $8.6 million | 5.0% decrease |
| Service revenue | $12.0 million | $10.7 million | 12.8% increase |
| Operating expenses | $85.1 million | $84.0 million | 1.4% increase |
| Operating loss | $31.4 million | $40.5 million | Improved by $9.2 million |
| Net loss | $32.4 million | $65.3 million | Improved by $32.9 million |
| Net loss attributable to Intrexon | $31.4 million | $64.4 million | Improved by $33.0 million |
| Loss per share | $0.26 | $0.55 | Improved |
| Net cash used in operating activities | $24.7 million | $3.6 million | Greater use of $21.1 million |
Operating margin was approximately negative 58.4% in Q1 2017, compared with negative 93.3% in Q1 2016. Net margin was approximately negative 60.2%, compared with negative 150.4% in the prior-year quarter. The filing does not present a single consolidated gross margin because collaboration and licensing revenue is reported alongside product and service activities.
At March 31, 2017, cash and cash equivalents were $69.9 million, restricted cash was $7.0 million, and short-term investments were $135.4 million. Cash, cash equivalents, and short-term investments totaled approximately $205.2 million. Total assets were $915.9 million and total liabilities were $365.8 million.
Total debt, including lines of credit and current and long-term debt, was approximately $8.4 million. Deferred revenue was $297.3 million, including $287.7 million of deferred upfront and milestone payments. Accumulated deficit was $762.2 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased $10.3 million, driven primarily by higher collaboration and licensing revenue, including increased recognition of deferred revenue and research and development reimbursements.
- Research and development expense increased $8.3 million, or 32.2%, to $34.2 million, reflecting higher personnel, laboratory, consulting, depreciation, and amortization costs.
- Selling, general and administrative expense decreased $7.7 million, or 18.1%, primarily because of the reversal of previously recognized stock-based compensation related to a former president’s options and the absence of $4.2 million of litigation expense recorded in Q1 2016.
- Other income improved by $24.8 million, principally because unrealized investment depreciation declined to $1.6 million from $22.3 million and the company recognized $3.9 million of dividend income from preferred stock investments.
- Operating cash use increased substantially, partly because Q1 2016 included a $10.0 million technology access fee and Q1 2017 included a $13.0 million decrease in deferred revenue.
- In January 2017, the company distributed 1,776,557 AquaBounty shares valued at $22.4 million as a noncash dividend to shareholders.
- In March 2017, Intrexon acquired the remaining 49% of BioPop for $0.9 million in cash and 221,743 Intrexon shares valued at $5.1 million, making BioPop wholly owned.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that the company expects to continue incurring significant losses and may never achieve profitability or generate royalty revenue from collaborator products. Management believes existing cash, investments, expected collaborator receipts, and product and service receipts will fund operating expenses and capital expenditures for at least the next 12 months, but noted that estimates may prove incorrect and additional financing may be required.
Remaining joint-venture capital contribution commitments were $24.7 million. Other commitments included $52.4 million of operating leases, $6.7 million of purchase commitments, $6.9 million of deferred consideration, $7.5 million of outstanding research and development commitments, and $6.1 million of scheduled long-term debt maturities, excluding obligations with uncertain repayment timing.
The company had a pending acquisition of GenVec, expected to close in the second or third quarter of 2017 subject to customary conditions and stockholder approval. In April 2017, it entered into a potential $2.4 million loan commitment to Oragenics, conditional on Oragenics raising at least $2.7 million in equity financing, and entered into a long-term Arctic apples land lease with approximately $4.1 million of future minimum payments.
Material legal and regulatory matters included appeals relating to the Trans Ova patent and licensing dispute, shareholder derivative litigation concerning the Third Security Services Agreement and executive compensation, and an SEC Division of Enforcement investigation into issues the company believes relate to those matters. The company stated that it intends to defend the litigation and is cooperating voluntarily with the SEC. The filing does not provide a clear estimate of potential losses from these matters.
Investment valuations remain significant and volatile. Equity securities and preferred stock were carried at fair values of $21.5 million and $134.7 million, respectively, at March 31, 2017. The company’s approximately 58% AquaBounty ownership was valued at $57.2 million. Certain preferred-stock valuations used Level 3 models with significant unobservable assumptions.
The company adopted several accounting standards in 2017, including ASU 2016-09 on stock compensation; the adoption produced a $1.5 million opening adjustment to additional paid-in capital and accumulated deficit. The company was evaluating the future effects of new revenue, lease, financial-instrument, and cash-flow standards.
Investor Verification Checklist
- Verify the issuer name: the supplied filing is for Intrexon Corporation, not Precigen, Inc.
- Assess the sustainability and composition of collaboration revenue, including the substantial deferred-revenue balance and reliance on related parties.
- Reconcile the increase in operating cash burn with management’s statement that available liquidity will fund operations for at least 12 months.
- Review the $24.7 million of remaining joint-venture funding commitments and other contractual obligations.
- Monitor GenVec acquisition closing conditions, the Oragenics loan commitment, and the Arctic apples lease.
- Evaluate exposure to changes in AquaBounty, collaborator equity, and Level 3 preferred-stock valuations.
- Track the Trans Ova litigation, shareholder derivative actions, SEC investigation, and any related settlements or appeals.
- Confirm the effect of the AquaBounty share dividend, stock-based compensation, and potential future equity issuance on ownership dilution.