Business Context and Reporting Period
The filing is an unaudited Form 10-Q for the quarter and six months ended June 30, 2016, filed August 9, 2016. The source filing identifies the registrant as Intrexon Corporation, not Precigen, Inc.; investors should verify the requested company identity and any subsequent name change.
Intrexon operated a synthetic-biology platform business supported by exclusive channel collaborations, licensing arrangements, research and development services, and product and service businesses, including bovine reproduction, genetic preservation, engineered livestock, insect control, aquaculture, and specialty produce. Management stated that no commercialized products derived from Intrexon's collaborations had been launched at the reporting date.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | Comparable 2015 Period |
|---|---|---|---|
| Total revenue | $52.5 million | $95.9 million | $44.9 million / $78.7 million |
| Operating loss | $(23.2) million | $(63.8) million | $(17.4) million / $(104.6) million |
| Net loss | $(50.0) million | $(115.4) million | $(41.5) million / $(15.7) million |
| Net loss attributable to Intrexon | $(49.1) million | $(113.5) million | $(40.7) million / $(13.6) million |
| Loss per share, basic and diluted | $(0.42) | $(0.97) | $(0.37) / $(0.13) |
| Operating margin | (44.2%) | (66.5%) | (38.8%) / (132.8%) |
| Net margin | (95.3%) | (120.2%) | (92.4%) / (19.9%) |
- Six-month collaboration and licensing revenue rose 61.3% to $51.6 million, while product revenue declined 16.2% to $19.4 million and service revenue increased 5.9% to $24.6 million.
- Six-month gross profit, calculated as revenue less product and service costs, was approximately $63.6 million, or 66.3% of revenue, versus approximately $54.4 million, or 69.1%, in 2015. The filing does not present a consolidated gross-margin subtotal.
- Six-month research and development expense was $54.2 million, down from $99.7 million, primarily because 2015 included a $59.6 million stock-based payment for an MD Anderson license. Selling, general and administrative expense increased 42.6% to $73.1 million.
- Six-month other expense was $43.8 million, compared with $94.7 million of other income in 2015. The 2015 period included an $81.4 million realized gain related to the distribution of ZIOPHARM shares to shareholders; 2016 included $45.8 million of losses from changes in the value of equity securities.
- Cash and cash equivalents were $155.1 million at June 30, 2016, compared with $135.8 million at December 31, 2015. Short- and long-term investments totaled $166.1 million, producing cash and investments of approximately $321.2 million.
- Net cash used in operating activities was $16.0 million for the six months, compared with $29.6 million in 2015. Investing activities provided $18.6 million, and financing activities provided $16.9 million, including $17.7 million from stock-option exercises.
- Total debt was approximately $8.0 million, including $0.5 million current debt; deferred consideration totaled $15.9 million. The company had $461,000 outstanding under a subsidiary revolving credit line and no borrowings under Trans Ova's $6.0 million revolving facility.
- Accumulated deficit was $656.2 million at June 30, 2016. Total assets were $1.03 billion and total equity was $628.2 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased 17.0%, driven by collaboration and licensing revenue growth of 59.9%; product revenue fell 23.7% because of lower demand for certain livestock products.
- Second-quarter operating loss widened 33.2% to $23.2 million as research and development expense increased 39.2% and SG&A increased 27.8%.
- Six-month operating loss improved substantially because of the absence of the $59.6 million MD Anderson stock-based license charge recorded in 2015; however, net loss attributable to Intrexon increased to $113.5 million because 2015 benefited from the ZIOPHARM distribution gain and favorable equity-security valuations.
- Deferred revenue increased to $325.2 million from $197.7 million at year-end 2015, primarily reflecting the $120.0 million fair value of ZIOPHARM preferred stock received in June 2016 and other collaboration consideration. The ZIOPHARM amendments reduced certain future royalties from 50% to 20%.
- New or expanded 2016 collaborations included Exotech Bio, Relieve Genetics, Intrexon T1D Partners, and AD Skincare. The company also acquired assets of EnviroFlight and formed a 50/50 joint venture with Darling Ingredients.
- Accumulated other comprehensive loss increased to $21.7 million from $12.8 million, primarily because of foreign-currency translation losses.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected to continue incurring significant losses and stated that profitability might never be achieved. It also stated that existing cash, investments, expected collaborator receipts, and product and service cash flows should fund operating and capital requirements for at least the next 12 months, subject to execution and market risks.
- Future cash requirements depend on collaboration payments, regulatory approvals, product commercialization, research and development spending, acquisitions, investments in affiliates, litigation, and the ability to raise additional capital. Additional equity or convertible-debt financing could dilute shareholders.
- The company had at least $34.4 million of remaining commitments for joint-venture capital contributions, $7.7 million of outstanding research and development commitments, and a potential $8.8 million remaining commitment to purchase Oragenics securities. These amounts were generally excluded from the contractual-obligations table because timing or funding was uncertain.
- Contractual obligations presented in the filing totaled $41.9 million, including operating leases, deferred consideration, long-term debt, and contingent consideration. A July 2016 Arctic-apple land lease added approximately $8.3 million of future minimum payments.
- Trans Ova recorded $4.2 million of litigation settlement expense following an adverse patent and licensing ruling involving XY, LLC. The company intends to appeal, but the ultimate outcome is uncertain; the order awarded $6.1 million to XY and $528,000 to Trans Ova, plus prejudgment interest.
- Shareholder securities class actions were filed in May 2016 and consolidated in July 2016. A separate shareholder derivative action concerning the Third Security services agreement was filed in July 2016; a special litigation committee was appointed.
- Fair-value volatility is significant. Equity securities declined in value from $83.7 million at year-end 2015 to $39.0 million at June 30, 2016, while the $120.0 million ZIOPHARM preferred-stock valuation was a Level 3 estimate based on a probability-weighted model and significant unobservable assumptions.
- The company had approximately $266.4 million of U.S. federal net operating-loss carryforwards and $6.8 million of federal and state research and development tax credits, subject to potential Section 382 limitations.
Most Important Facts for Investors to Verify
- Confirm whether this filing should be attributed to Intrexon Corporation or Precigen, Inc., given the company-name mismatch in the request metadata.
- Assess the sustainability and quality of collaboration revenue, including the substantial deferred-revenue balance and reliance on related parties and equity consideration.
- Reconcile reported net losses with noncash fair-value losses, stock-based compensation, deferred revenue, and the absence of recurring royalty revenue from commercialized collaboration products.
- Evaluate liquidity against recurring operating cash burn, joint-venture contributions, research commitments, litigation exposure, potential acquisitions, and possible future equity financing.
- Review the valuation assumptions and liquidity restrictions associated with the ZIOPHARM preferred stock and other collaborator equity holdings.
- Monitor regulatory approval, commercialization, and market-acceptance risks for the company's platforms, subsidiaries, and collaborators.