Notes to Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except share and per share data)
1
. Organization
Intrexon Corporation ("Intrexon"), a Virginia corporation, forms collaborations to create biologically based products and processes using synthetic biology. Intrexon's primary domestic operations are in California, Florida, Maryland, and Virginia, and its primary international operations are in Belgium and Hungary. There have been no commercialized products derived from Intrexon's collaborations to date.
Trans Ova Genetics, L.C. ("Trans Ova"), a provider of bovine reproductive technologies and other genetic processes to cattle breeders and producers, is a wholly owned subsidiary of Intrexon with primary operations in Iowa, Maryland, Missouri, Oklahoma, and Texas.
Oxitec Limited ("Oxitec"), a pioneering company in biological insect control solutions, is a wholly owned subsidiary of Intrexon with primary operations in England and Brazil.
Intrexon Produce Holdings, Inc. ("IPHI") is a wholly owned subsidiary of Intrexon. Okanagan Specialty Fruits, Inc. ("Okanagan"), a company which developed and received regulatory approval for the world's first non-browning apple without the use of any flavor-altering chemical or antioxidant additives, is a wholly owned subsidiary of IPHI with primary operations in Canada. Fruit Orchard Holdings, Inc. ("FOHI") is a wholly owned subsidiary of IPHI with primary operations in Washington.
ViaGen, L.C. ("ViaGen"), a provider of genetic preservation and cloning technologies, and Exemplar Genetics, LLC ("Exemplar"), a provider of genetically engineered swine for medical and genetic research, are wholly owned subsidiaries with primary operations in Texas and Iowa, respectively.
In March 2017, Intrexon acquired the remaining
49%
of the equity of Biological & Popular Culture, Inc. ("BioPop"), a California company developing artwork, children's toys and novelty goods that are derived from living organisms or enabled by synthetic biology for
$900
in cash and
221,743
shares of Intrexon common stock valued at
$5,082
. Upon closing this transaction, BioPop became a wholly owned subsidiary of Intrexon.
As of
March 31, 2017
, Intrexon owned approximately
58%
of AquaBounty Technologies, Inc. ("AquaBounty"), a company focused on improving productivity in commercial aquaculture. In January 2017, in conjunction with the listing by AquaBounty of their common stock on the NASDAQ Stock Market, Intrexon purchased
$25,000
of additional AquaBounty common stock and subsequently distributed shares of AquaBounty common stock as a dividend to Intrexon shareholders. See Note
13
for additional discussion.
Intrexon Corporation and its consolidated subsidiaries are hereinafter referred to as the "Company."
2
. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Certain information and footnote disclosures normally included in the Company's annual financial statements have been condensed or omitted. These interim consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for fair statement of the Company's financial position as of
March 31, 2017
and results of operations and cash flows for the interim periods ended
March 31, 2017
and
2016
. The year-end consolidated balance sheet data was derived from the Company's audited financial statements but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily indicative of the results to be expected for the year ending
December 31, 2017
, or for any other future annual or interim period. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2016
.
The accompanying consolidated financial statements reflect the operations of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Investments in Preferred Stock
The Company holds preferred stock in certain of its collaborators which may be converted to common stock as described in Note
6
. The Company elected the fair value option to account for its investments in preferred stock whereby the value of preferred stock is adjusted to fair value as of each reporting date and unrealized gains and losses are reported in the consolidated statement of operations. These investments are subject to fluctuation in the future due to, among other things, the likelihood and timing of conversion of the preferred stock into common stock, the volatility of each collaborator's common stock, and changes in general economic and financial conditions of the collaborators. The investments are classified as noncurrent in the consolidated balance sheet since the Company does not intend to sell the investments nor expect them to be converted into shares of common stock within one year.
Until such time as the Company converts the preferred stock into common stock, the Company is entitled to monthly dividends and records dividend income as described in Note
6
.
Equity Method Investments
The Company accounts for its investments in each of its joint ventures and for its investments in start-up entities backed by the Harvest Intrexon Enterprise Fund I, LP ("Harvest"), a related party, (Note
16
) using the equity method of accounting based upon relative ownership interest. The Company's investments in these entities are included in investments in affiliates in the accompanying consolidated balance sheets.
The Company accounts for its investment in Oragenics, Inc. ("Oragenics"), one of its collaborators, using the fair value option.
The fair value of the Company's investment in Oragenics was
$5,902
and
$7,244
as of
March 31, 2017
and
December 31, 2016
, respectively, and is included as equity securities in the accompanying consolidated balance sheets. The Company's ownership of Oragenics was
29.4%
and
29.5%
as of
March 31, 2017
and
December 31, 2016
, respectively. Unrealized depreciation in the fair value of these securities was
$1,341
and
$6,345
for the
three months ended March 31, 2017
and
2016
, respectively.
Summarized unaudited financial data as of
March 31, 2017
and
December 31, 2016
and for the
three months ended March 31, 2017
and
2016
, for the Company's equity method investments are shown in the following tables.
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Current assets
|
$
|
75,902
|
|
|
$
|
77,761
|
|
Non-current assets
|
12,016
|
|
|
11,040
|
|
Total assets
|
87,918
|
|
|
88,801
|
|
Current liabilities
|
14,095
|
|
|
11,588
|
|
Net assets
|
$
|
73,823
|
|
|
$
|
77,213
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Revenues
|
$
|
30
|
|
|
$
|
282
|
|
Operating expenses
|
13,343
|
|
|
17,660
|
|
Operating loss
|
(13,313
|
)
|
|
(17,378
|
)
|
Other
|
5
|
|
|
3
|
|
Net loss
|
$
|
(13,308
|
)
|
|
$
|
(17,375
|
)
|
Variable Interest Entities
As of
March 31, 2017
and
December 31, 2016
, the Company determined that certain of its collaborators and joint ventures as well as Harvest were variable interest entities ("VIE" or "VIEs"). The Company was not the primary beneficiary for these
entities since it did not have the power to direct the activities that most significantly impact the economic performance of the VIEs. The Company's aggregate investment balances of these VIEs as of
March 31, 2017
and
December 31, 2016
were
$165,945
and
$159,115
, respectively, which represents the Company's maximum risk of loss related to the identified VIEs.
Self-insurance Reserves
Effective January 1, 2017, the Company commenced a self-insurance program for a significant portion of its employee health benefit programs. The Company maintains stop-loss coverage with third party insurers to limit its individual claims and total exposure under those programs. The Company estimates its accrued liability for the ultimate costs to close known claims, including claims incurred but not yet reported to the Company, as of the balance sheet date. The Company's recorded estimated liability for self-insurance is based on the insurance company's incurred loss estimates and management's judgment, including assumptions and factors related to the frequency and severity of claims and the Company's claims development history.
The assessment of self-insurance reserves is a highly subjective process that requires judgments about future events. Self-insurance reserves are reviewed at least quarterly to determine the adequacy of the accruals and related financial statement disclosure. The ultimate settlement of self-insurance reserves may differ significantly from amounts the Company has accrued in its consolidated financial statements.
Segment Information
While the Company generates revenues from multiple sources, including collaboration agreements, licensing, and products and services associated with bovine reproduction, management is organized around a singular research and development focus to further the development of the Company's underlying synthetic biology technologies. Accordingly, the Company has determined that it operates in
one
segment. As of
March 31, 2017
and
December 31, 2016
, the Company had
$14,586
and
$13,265
, respectively, of long-lived assets in foreign countries. The Company recognized revenues derived in foreign countries totaling
$3,714
and
$2,496
for the
three months ended March 31, 2017
and
2016
, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
In October 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-17,
Consolidation (Topic 810) - Interests Held through Related Parties That Are under Common Control
("ASU 2016-17"). The provisions of ASU 2016-17 amend the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The Company adopted this standard effective January 1, 2017, and the implementation of this standard did not have a material impact on the Company's consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"). The provisions of ASU 2016-09 simplify various aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this standard effective January 1, 2017. Upon adoption in the first quarter of 2017, the Company elected to recognize forfeitures as they occur and recorded an opening adjustment to additional paid-in capital and accumulated deficit for previously unrecognized stock-based compensation costs due to estimating forfeitures on unvested shares totaling
$1,461
. The Company also recognized deferred tax assets of approximately
$17,900
related to the excess tax benefits that previously arose directly from tax deductions related to equity compensation greater than stock-based compensation costs recognized in the consolidated financial statements and the cumulative adjustment for forfeitures. These deferred tax assets were fully offset by a valuation allowance (Note
12
). The adoption was on a modified retrospective basis and had no impact on prior periods.
In March 2016, the FASB issued ASU 2016-07,
Investments-Equity Method and Joint Ventures (Topic 323) - Simplifying the Transition to the Equity Method of Accounting
("ASU 2016-07"). The provisions of ASU 2016-07 eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or
degree of influence, an adjustment must be made to the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The Company adopted this standard effective January 1, 2017, and the implementation of this standard did not have a material impact on the Company's consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330) - Simplifying the Measurement of Inventory
("ASU 2015-11"). The provisions of ASU 2015-11 provide guidance for simplifying the calculation for subsequent measurement of inventory measured using the first-in-first-out or average cost methods. The Company adopted this standard effective January 1, 2017, and the implementation of this standard did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("
ASU 2017-04"). The provisions of ASU 2017-04 simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, with early adoption permitted, and is effective for the Company for the year ending December 31, 2020. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805) - Clarifying the Definition of a Business
("ASU 2017-01"). The provisions of ASU 2017-01 clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, with early adoption permitted, and is effective for the Company for the year ending December 31, 2018. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230) - Restricted Cash (A Consensus of the FASB Emerging Issues Task Force)
("ASU 2016-18"). The provisions of ASU 2016-18 require amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the total beginning and ending balances for the periods presented on the statement of cash flows. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, with early adoption permitted, and is effective for the Company for the year ending December 31, 2018. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows
(Topic 230) - Classification of Certain Cash Receipts and Cash Payments
("ASU 2016-15"). The provisions of ASU 2016-15 address eight specific cash flow issues and how those certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230,
Statement of Cash Flows
, and other Topics. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, with early adoption permitted, and is effective for the Company for the year ending December 31, 2018. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
("ASU 2016-02"). The provisions of ASU 2016-02 set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for in a similar manner as under existing guidance for operating leases today. ASU 2016-02 supersedes the previous lease standard, Topic 840,
Leases
. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, and is effective for the Company for the year ending December 31, 2019. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities
("ASU 2016-01"). The provisions of ASU 2016-01 make targeted improvements to enhance the reporting model for financial instruments to provide users of financial statements with more
decision-useful information, including certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, and is effective for the Company for the year ending December 31, 2018. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
("ASU 2014-09"). The FASB issued ASU 2014-09 to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This guidance was originally effective for annual periods and interim periods within those annual periods beginning after December 15, 2016 and early adoption was not permitted. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date
, which deferred the effective date of the guidance in ASU 2014-09 by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016, and is effective for the Company for the year ending December 31, 2018. In 2016, the FASB clarified the implementation guidance on principal versus agent, identifying performance obligations, licensing, narrow-scope improvements, practical expedients, and to expedite improvements to ASU 2014-09 by issuing ASU 2016-08,
Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations
, ASU 2016-10,
Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing
, and ASU 2016-12,
Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients
, and ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
. The Company is currently evaluating its collaborations and licensing agreements to determine the impact, if any, that the implementation of this standard will have on the Company's consolidated financial statements as it relates to the recognition of upfront and milestone payments that have been deferred under the current revenue guidance, reimbursements for costs incurred by the Company for research and development services provided pursuant to collaborations, and royalties on sales of products arising from collaborations.
3
. Investments in Joint Ventures
S & I Ophthalmic
In September 2013, the Company entered into a Limited Liability Company Agreement ("Sun LLC Agreement") with Caraco Pharmaceutical Laboratories, Ltd. ("Sun Pharmaceutical Subsidiary"), an indirect subsidiary of Sun Pharmaceutical Industries Ltd. ("Sun Pharmaceutical"), an international specialty pharmaceutical company focused on chronic diseases, to form S & I Ophthalmic, LLC ("S & I Ophthalmic"). The Sun LLC Agreement governs the affairs and the conduct of business of S & I Ophthalmic. S & I Ophthalmic leverages experience and technology from both the Company and Sun Pharmaceutical. Both the Company and Sun Pharmaceutical Subsidiary made an initial capital contribution of
$5,000
in October 2013 for a
50%
membership interest in S & I Ophthalmic. S & I Ophthalmic is governed by a board of managers ("S & I Ophthalmic Board") which has
four
members, two each from the Company and Sun Pharmaceutical Subsidiary. In cases in which the S & I Ophthalmic Board determines that additional capital contributions are necessary in order for S & I Ophthalmic to conduct business and comply with its obligations, each of the Company and Sun Pharmaceutical Subsidiary has committed to making additional capital contributions to S & I Ophthalmic subject to certain limits defined in the agreement. Each has the right, but not the obligation, to make additional capital contributions above the defined limits when and if solicited by the S & I Ophthalmic Board. In 2015, both the Company and Sun Pharmaceutical Subsidiary made subsequent capital contributions of
$5,000
.
Beginning on the seventh anniversary of the effective date of the Sun LLC Agreement, and upon the second anniversary thereafter, the Company, as well as Sun Pharmaceutical Subsidiary, may make a cash offer to purchase all of the other party's interest in S & I Ophthalmic. Upon receipt of such an offer, the other party must either agree to tender its interests at the offered price or submit a counteroffer at a price higher than the original offer. Such offer and counteroffer may continue until one party agrees to the other's price.
The Company's investment in S & I Ophthalmic was
$2,836
and
$3,236
as of
March 31, 2017
and
December 31, 2016
, respectively, and is included in investments in affiliates in the accompanying consolidated balance sheets.
OvaXon
In December 2013, the Company and OvaScience, Inc. ("OvaScience"), a life sciences company focused on the discovery, development and commercialization of new treatments for infertility, entered into a Limited Liability Company Agreement ("OvaXon LLC Agreement") to form OvaXon, LLC ("OvaXon"), a joint venture to create new applications for improving human and animal health. Both the Company and OvaScience made an initial capital contribution of
$1,500
in January 2014
for a
50%
membership interest in OvaXon. OvaXon is governed by the OvaXon board of managers ("OvaXon Board") which has
four
members, two each from the Company and OvaScience. In cases in which the OvaXon Board determines that additional capital contributions are necessary in order for OvaXon to conduct business and comply with its obligations, each of the Company and OvaScience has the right, but not the obligation, to make additional capital contributions to OvaXon subject to the OvaXon LLC Agreement. Through
March 31, 2017
, both the Company and OvaScience have made subsequent capital contributions of
$3,250
.
The Company's investment in OvaXon was
$(356)
and
$65
as of
March 31, 2017
and
December 31, 2016
, respectively, and is included in other accrued liabilities and investments in affiliates, respectively, in the accompanying consolidated balance sheets.
Intrexon Energy Partners
In March 2014, the Company and certain investors (the "IEP Investors"), including an affiliate of Third Security, LLC ("Third Security"), entered into a Limited Liability Company Agreement which governs the affairs and conduct of business of Intrexon Energy Partners, LLC ("Intrexon Energy Partners"), a joint venture formed to optimize and scale-up the Company's gas-to-liquid bioconversion platform for the production of certain fuels and lubricants. The Company also entered into an ECC with Intrexon Energy Partners providing exclusive rights to the Company's technology for the use in bioconversion, as a result of which the Company received a technology access fee of
$25,000
while retaining a
50%
membership interest in Intrexon Energy Partners. The IEP Investors made initial capital contributions, totaling
$25,000
in the aggregate, in exchange for pro rata membership interests in Intrexon Energy Partners totaling
50%
. In addition, Intrexon has committed to make capital contributions of up to
$25,000
, and the IEP Investors, as a group and pro rata in accordance with their respective membership interests in Intrexon Energy Partners, have committed to make additional capital contributions of up to
$25,000
, at the request of Intrexon Energy Partners' board of managers (the "Intrexon Energy Partners Board") and subject to certain limitations. As of
March 31, 2017
, the Company's remaining commitment was
$8,271
. Intrexon Energy Partners is governed by the Intrexon Energy Partners Board which has
five
members. Two members of the Intrexon Energy Partners Board are designated by the Company and three members are designated by a majority of the IEP Investors. The Company and the IEP Investors have the right, but not the obligation, to make additional capital contributions above the initial limits when and if solicited by the Intrexon Energy Partners Board.
The Company's investment in Intrexon Energy Partners was
$(788)
and
$(477)
as of
March 31, 2017
and
December 31, 2016
, respectively, and is included in other accrued liabilities in the accompanying consolidated balance sheets.
Intrexon Energy Partners II
In December 2015, the Company and certain investors (the "IEPII Investors"), including Harvest, entered into a Limited Liability Company Agreement which governs the affairs and conduct of business of Intrexon Energy Partners II, LLC ("Intrexon Energy Partners II"), a joint venture formed to utilize the Company's natural gas bioconversion platform for the production of 1,4-butanediol, an industrial chemical used to manufacture spandex, polyurethane, plastics, and polyester. The Company also entered into an ECC with Intrexon Energy Partners II which provides exclusive rights to the Company's technology for use in the field, as a result of which the Company received a technology access fee of
$18,000
while retaining a
50%
membership interest in Intrexon Energy Partners II. The IEPII Investors made initial capital contributions, totaling
$18,000
in the aggregate, in exchange for pro rata membership interests in Intrexon Energy Partners II totaling
50%
. In December 2015, the owners of Intrexon Energy Partners II made a capital contribution of
$4,000
, half of which was paid by the Company. Intrexon has committed to make additional capital contributions of up to
$10,000
, and the IEPII Investors, as a group and pro rata in accordance with their respective membership interests in Intrexon Energy Partners II, have committed to make additional capital contributions of up to
$10,000
, at the request of Intrexon Energy Partners II's board of managers (the "Intrexon Energy Partners II Board") and subject to certain limitations. Intrexon Energy Partners II is governed by the Intrexon Energy Partners II Board which has
five
members. One member of the Intrexon Energy Partners II Board is designated by the Company and four members are designated by a majority of the IEPII Investors. The Company and the IEPII Investors have the right, but not the obligation, to make additional capital contributions above the initial limits when and if solicited by the Intrexon Energy Partners II Board.
The Company's investment in Intrexon Energy Partners II was
$1,084
and
$1,414
as of
March 31, 2017
and
December 31, 2016
, respectively, and is included in investments in affiliates in the accompanying consolidated balance sheets.
EnviroFlight
In February 2016, the Company entered into a series of transactions involving EnviroFlight, LLC ("Old EnviroFlight"), Darling Ingredients Inc. ("Darling") and a newly formed venture between the Company and Darling ("New EnviroFlight"). The Company determined that the series of integrated transactions to acquire substantially all of the assets of Old EnviroFlight for cash, common stock, and contingent consideration should be accounted for as a single transaction, which constituted a business, and considered New EnviroFlight to be the accounting acquirer pursuant to Accounting Standards Codification ("ASC") 805,
Business Combinations
. Consideration paid to Old EnviroFlight was
$4,244
in cash,
136,340
shares of the Company's common stock valued at
$4,401
and contingent consideration estimated at
$3,660
. Contemporaneously, all the assets acquired from Old EnviroFlight, with the exception of certain developed technology, and
$3,000
of cash were contributed to New EnviroFlight in exchange for a non-controlling,
50%
membership interest in New EnviroFlight. The Company's contributions to New EnviroFlight included an exclusive license to the developed technology that was retained by the Company. Darling received the remaining
50%
membership interest in New EnviroFlight as consideration for terminating rights previously held in the developed technology with Old EnviroFlight. New EnviroFlight was formed to generate high-nutrition, low environmental impact animal and fish feed, as well as fertilizer products. The Company and Darling as members have each agreed to make additional capital contributions of up to
$5,000
to fund ongoing operations of New EnviroFlight. As of
March 31, 2017
, the Company's remaining commitment was
$2,750
. All of the employees of Old EnviroFlight became employees of New EnviroFlight.
The Company determined that its investment in New EnviroFlight should be accounted for using the equity method of accounting. The Company recorded an estimated fair value of
$5,425
for its investment in New EnviroFlight and
$9,880
for the retained developed technology intangible asset. The developed technology is being amortized over a period of
twenty-one years
. The contingent consideration liability payable to the members of Old EnviroFlight is considered a freestanding financial instrument in accordance with ASC 480,
Distinguishing Liabilities and Equity
, and is recorded at fair value each reporting period. The value of this liability was estimated at
$2,160
as of
March 31, 2017
(Note
7
). New EnviroFlight met a regulatory milestone, as defined in the asset purchase agreement, and the members of Old EnviroFlight received a portion of the contingent consideration consisting of
59,337
shares of the Company's common stock valued at
$1,583
in October 2016. The members of Old EnviroFlight may receive up to
$4,000
of additional shares of the Company's common stock if certain commercial milestones are met prior to February 2019.
The Company's investment in New EnviroFlight was
$6,066
and
$4,189
as of
March 31, 2017
and
December 31, 2016
, respectively, and is included in investments in affiliates in the accompanying consolidated balance sheets.
Intrexon T1D Partners
In March 2016, the Company and certain investors (the "T1D Investors"), including affiliates of Third Security, entered into a Limited Liability Company Agreement which governs the affairs and conduct of business of Intrexon T1D Partners, LLC ("Intrexon T1D Partners"), a joint venture formed to utilize the Company's proprietary ActoBiotics platform to develop and commercialize products to treat type 1 diabetes. The Company also entered into an ECC with Intrexon T1D Partners which provides the exclusive rights to the Company's technology for use in the field, as a result of which the Company received a technology access fee of
$10,000
while retaining a
50%
membership interest in Intrexon T1D Partners. The T1D Investors made initial capital contributions, totaling
$10,000
in the aggregate, in exchange for pro rata membership interests in Intrexon T1D Partners totaling
50%
. Intrexon has committed to make capital contributions of up to
$5,000
, and the T1D Investors, as a group and pro rata in accordance with their respective membership interests in Intrexon T1D Partners, have committed to make additional capital contributions of up to
$5,000
, at the request of Intrexon T1D Partners' board of managers (the "Intrexon T1D Partners Board") and subject to certain limitations. As of
March 31, 2017
, the Company's remaining commitment was
$3,650
. Intrexon T1D Partners is governed by the Intrexon T1D Partners Board, which has
five
members. Two members of the Intrexon T1D Partners Board are designated by the Company and three members are designated by a majority of the T1D Investors. The Company and the T1D Investors have the right, but not the obligation, to make additional capital contributions above these limits when and if solicited by the Intrexon T1D Partners Board.
The Company's investment in Intrexon T1D Partners was
$367
and
$806
as of
March 31, 2017
and
December 31, 2016
, respectively, and is included in investments in affiliates in the accompanying consolidated balance sheets.
4
. Collaboration and Licensing Revenue
The Company generates revenue through contractual agreements with collaborators (known as exclusive channel collaborations, "ECC" or "ECCs") and licensing agreements whereby the collaborators or the licensees obtain exclusive access to the Company's proprietary technologies for use in the research, development and commercialization of products and/or treatments in a contractually specified field of use. Upfront and milestone payments are typically deferred and recognized over the expected life of the Company's technology platform using a straight-line approach. The Company recognizes the reimbursement payments received for research and development services in the period in which the services are performed and collection is reasonably assured. The following tables summarize the amounts recorded as revenue in the consolidated statements of operations for each significant counterparty to a collaboration or licensing agreement for the
three
months ended
March 31, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Revenue Recognized From
|
|
Total
|
|
Upfront and Milestone Payments
|
|
Research and Development Services
|
|
ZIOPHARM Oncology, Inc.
|
$
|
4,842
|
|
|
$
|
6,143
|
|
|
$
|
10,985
|
|
Oragenics, Inc.
|
263
|
|
|
306
|
|
|
569
|
|
Fibrocell Science, Inc.
|
605
|
|
|
1,134
|
|
|
1,739
|
|
Genopaver, LLC
|
69
|
|
|
1,611
|
|
|
1,680
|
|
S & I Ophthalmic, LLC
|
—
|
|
|
303
|
|
|
303
|
|
OvaXon, LLC
|
—
|
|
|
824
|
|
|
824
|
|
Intrexon Energy Partners, LLC
|
625
|
|
|
4,461
|
|
|
5,086
|
|
Persea Bio, LLC
|
125
|
|
|
164
|
|
|
289
|
|
Ares Trading S.A.
|
1,597
|
|
|
1,718
|
|
|
3,315
|
|
Intrexon Energy Partners II, LLC
|
500
|
|
|
649
|
|
|
1,149
|
|
Intrexon T1D Partners, LLC
|
264
|
|
|
868
|
|
|
1,132
|
|
Harvest start-up entities (1)
|
601
|
|
|
2,762
|
|
|
3,363
|
|
Other
|
1,833
|
|
|
798
|
|
|
2,631
|
|
Total
|
$
|
11,324
|
|
|
$
|
21,741
|
|
|
$
|
33,065
|
|
|
|
(1)
|
For the
three months ended March 31, 2017
, revenue recognized from collaborations with Harvest start-up entities include Thrive Agrobiotics, Inc.; Exotech Bio, Inc.; Relieve Genetics, Inc.; AD Skincare, Inc.; Genten Therapeutics, Inc.; and CRS Bio, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Revenue Recognized From
|
|
Total
|
|
Upfront and Milestone Payments
|
|
Research and Development Services
|
|
ZIOPHARM Oncology, Inc.
|
$
|
922
|
|
|
$
|
6,059
|
|
|
$
|
6,981
|
|
Oragenics, Inc.
|
263
|
|
|
543
|
|
|
806
|
|
Fibrocell Science, Inc.
|
605
|
|
|
1,252
|
|
|
1,857
|
|
Genopaver, LLC
|
69
|
|
|
1,509
|
|
|
1,578
|
|
S & I Ophthalmic, LLC
|
—
|
|
|
1,186
|
|
|
1,186
|
|
OvaXon, LLC
|
—
|
|
|
694
|
|
|
694
|
|
Intrexon Energy Partners, LLC
|
625
|
|
|
3,363
|
|
|
3,988
|
|
Persea Bio, LLC
|
125
|
|
|
199
|
|
|
324
|
|
Ares Trading S.A.
|
1,597
|
|
|
808
|
|
|
2,405
|
|
Intrexon Energy Partners II, LLC
|
500
|
|
|
50
|
|
|
550
|
|
Harvest start-up entities (1)
|
46
|
|
|
388
|
|
|
434
|
|
Other
|
1,020
|
|
|
2,250
|
|
|
3,270
|
|
Total
|
$
|
5,772
|
|
|
$
|
18,301
|
|
|
$
|
24,073
|
|
|
|
(1)
|
For the
three months ended March 31, 2016
, revenue recognized from collaborations with Harvest start-up entities include Thrive Agrobiotics, Inc.
|
There have been no significant changes to arrangements with our collaborators and licensees in the
three months ended March 31, 2017
. See Note 5 in the Company's Annual Report on Form 10-K for the year ended
December 31, 2016
for additional details of the Company's existing collaboration and licensing agreements.
Deferred Revenue
Deferred revenue primarily consists of consideration received for upfront and milestone payments in connection with the Company's collaborations and licensing agreements, prepayments for research and development services performed for collaborators and licensees, and prepayments for product and service revenues. Deferred revenue consists of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Upfront and milestone payments
|
$
|
287,677
|
|
|
$
|
297,867
|
|
Prepaid research and development services
|
3,899
|
|
|
6,015
|
|
Prepaid product and service revenues
|
5,613
|
|
|
5,554
|
|
Other
|
102
|
|
|
706
|
|
Total
|
$
|
297,291
|
|
|
$
|
310,142
|
|
Current portion of deferred revenue
|
$
|
50,333
|
|
|
$
|
53,364
|
|
Long-term portion of deferred revenue
|
246,958
|
|
|
256,778
|
|
Total
|
$
|
297,291
|
|
|
$
|
310,142
|
|
The following table summarizes the remaining balance of deferred revenue associated with upfront and milestone payments for each significant collaboration and licensing agreement.
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
ZIOPHARM Oncology, Inc.
|
$
|
133,967
|
|
|
$
|
138,809
|
|
Oragenics, Inc.
|
7,503
|
|
|
7,766
|
|
Fibrocell Science, Inc.
|
18,421
|
|
|
19,026
|
|
Genopaver, LLC
|
1,908
|
|
|
1,977
|
|
Intrexon Energy Partners, LLC
|
17,500
|
|
|
18,125
|
|
Persea Bio, LLC
|
3,875
|
|
|
4,000
|
|
Ares Trading S.A.
|
45,581
|
|
|
47,178
|
|
Intrexon Energy Partners II, LLC
|
15,333
|
|
|
15,833
|
|
Intrexon T1D Partners, LLC
|
8,492
|
|
|
8,653
|
|
Harvest start-up entities (1)
|
19,681
|
|
|
20,208
|
|
Other
|
15,416
|
|
|
16,292
|
|
Total
|
$
|
287,677
|
|
|
$
|
297,867
|
|
|
|
(1)
|
As of
March 31, 2017
and
December 31, 2016
, the balance of deferred revenue for collaborations with Harvest start-up entities includes Thrive Agrobiotics, Inc.; Exotech Bio, Inc.; Relieve Genetics, Inc.; AD Skincare, Inc.; Genten Therapeutics, Inc.; and CRS Bio, Inc.
|
5
. Short-term and Long-term Investments
The Company's investments are classified as available-for-sale. The following table summarizes the amortized cost, gross unrealized gains and losses and fair value of available-for-sale investments as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Aggregate
Fair Value
|
U.S. government debt securities
|
$
|
135,214
|
|
|
$
|
1
|
|
|
$
|
(110
|
)
|
|
$
|
135,105
|
|
Certificates of deposit
|
272
|
|
|
—
|
|
|
—
|
|
|
272
|
|
Total
|
$
|
135,486
|
|
|
$
|
1
|
|
|
$
|
(110
|
)
|
|
$
|
135,377
|
|
The following table summarizes the amortized cost, gross unrealized gains and losses and fair value of available-for-sale investments as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Aggregate
Fair Value
|
U.S. government debt securities
|
$
|
180,412
|
|
|
$
|
5
|
|
|
$
|
(94
|
)
|
|
$
|
180,323
|
|
Certificates of deposit
|
272
|
|
|
—
|
|
|
—
|
|
|
272
|
|
Total
|
$
|
180,684
|
|
|
$
|
5
|
|
|
$
|
(94
|
)
|
|
$
|
180,595
|
|
For more information on the Company's method for determining the fair value of its assets, see Note 2 – "Fair Value of Financial Instruments" in the Company's Annual Report on Form 10-K for the year ended
December 31, 2016
.
As of
March 31, 2017
, all of the available-for-sale investments were due within one year based on their contractual maturities.
Changes in market interest rates and bond yields cause certain investments to fall below their cost basis, resulting in unrealized losses on investments. The unrealized losses of the Company's investments were primarily a result of unfavorable changes in interest rates subsequent to the initial purchase of these investments and have been in a loss position for less than 12 months.
As of
March 31, 2017
and
December 31, 2016
, the Company did not consider any of its investments to be other-than-temporarily impaired. When evaluating its investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer, the Company's ability and intent to hold the security and whether it is more likely than not that it will be required to sell the investment before recovery of its cost basis.
6
. Investments in Preferred Stock
Investment in ZIOPHARM Preferred Stock
In June 2016, the Company received
100,000
shares of Series 1 Preferred Stock (the "Preferred Shares") of ZIOPHARM Oncology Inc. ("ZIOPHARM"), with a per share stated value of
$1,200
, as consideration for amending their two previously existing ECC agreements. A summary of the terms of the Preferred Shares follows.
Conversion.
The Preferred Shares shall automatically convert into shares of ZIOPHARM common stock upon the date the first approval in the United States of (i) a ZIOPHARM product, as defined in and developed under one of the ECC agreements, or (ii) a product, as defined and developed under the License and Collaboration Agreement with Ares Trading S.A., a subsidiary of the biopharmaceutical business of Merck KGaA, and ZIOPHARM, is publicly announced (the "Conversion Event Date"). The Preferred Shares shall convert into a number of shares of ZIOPHARM common stock equal to the stated value of such Preferred Share, divided by the greater of: (i) the volume weighted average closing price of ZIOPHARM's common stock over the
twenty
trading days ending on the Conversion Event Date or (ii)
$1.00
. The number of converted shares is subject to certain limitations defined in the amended and restated Certificate of Designation, Preferences, and Rights of Series 1 Preferred Stock (the "A&R Certificate of Designation").
Dividend Rights.
The Company shall receive a monthly dividend, payable in additional Preferred Shares, equal to
$12.00
per Preferred Share held per month divided by the stated value of the Preferred Shares, which is referred to as the PIK Dividend. For any Preferred Shares that are not converted on the Conversion Event Date, the rate of PIK Dividend on these unconverted Preferred Shares will automatically increase from
$12.00
to
$24.00
per Preferred Share per month.
Voting Rights
. The Preferred Shares do not have any voting rights except for certain protective voting rights defined in the A&R Certificate of Designation.
Liquidation Rights.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of ZIOPHARM or a deemed liquidation event, as defined in the A&R Certificate of Designation, including a change of control or the sale, lease transfer or exclusive license of all or substantially all of ZIOPHARM's assets, the holders of the Preferred Shares shall be entitled to receive a portion of all funds to be distributed in proportion to the holders' proportionate share of ZIOPHARM's common stock on an as-converted to common stock basis (the "Series 1 Liquidation Amount"). For purposes of calculating the Series 1 Liquidation Amount, if such liquidation event occurs prior to the Conversion Event Date, each Preferred Share shall be deemed to be convertible into the number of shares of ZIOPHARM's common stock equal to (i) the stated value of each Preferred Share, divided by (ii) the volume weighted average price of ZIOPHARM's common stock for the
twenty
day period ending on the date of the public announcement of the liquidation event. In addition, ZIOPHARM may elect to redeem the Preferred Shares in connection with or following a deemed liquidation event at a price per share equal to the Series 1 Liquidation Amount.
The investment in ZIOPHARM preferred stock is categorized as Level 3 as there are significant unobservable inputs and the Preferred Shares are not traded on a public exchange. The fair value of the investment in ZIOPHARM preferred stock is estimated using a probability-weighted expected return ("PWERM") model. The key inputs used in the PWERM model are (i) estimating the future returns for conversion of the Preferred Shares for both product approval and a change in control of ZIOPHARM (the "conversion events") using market data of the change in value for guideline companies as a result of these conversion events; (ii) estimating the expected date and likelihood of each conversion event; and (iii) discounting these estimated future returns using a discount rate for the Preferred Shares considering industry debt issuances originated by public funds and venture capital rates of return. There have been no significant changes in the fair value of the Preferred Shares during the
three months ended March 31, 2017
. A significant change in unobservable inputs discussed above could result in a significant impact on the fair value of the Company's investment in ZIOPHARM preferred stock. The fair value of the Company's investment in ZIOPHARM preferred stock, including additional Preferred Shares received as dividends, was
$133,468
and
$129,545
as of
March 31, 2017
and
December 31, 2016
, respectively. During the
three months ended March 31, 2017
, the Company received
3,216
shares of additional Preferred Shares and recognized
$3,923
of dividend income in the accompanying consolidated statement of operations.
Investment in Fibrocell Preferred Stock
In March 2017, Fibrocell Science, Inc. ("Fibrocell"), one of the Company's collaborators and a related party, sold Series A Convertible Preferred Stock (the "Convertible Preferred Shares") convertible into shares of Fibrocell common stock and warrants to purchase shares of Fibrocell common stock to certain institutional and accredited investors, including the Company and affiliates of Third Security. The Company paid
$1,161
in exchange for
1,161
Convertible Preferred Shares and warrants to acquire
498,843
shares of Fibrocell common stock, reflective of the
1-for-3
reverse stock split of Fibrocell's common stock effective March 10, 2017. The Convertible Preferred Shares are convertible at any time at the election of the Company and accrue dividends at
4%
per annum, compounded quarterly, increasing the stated value of the shares. The investment in Fibrocell preferred stock is categorized as Level 3 as there are significant unobservable inputs and the Convertible Preferred Shares are not traded on a public exchange. The fair value of the investment in Fibrocell preferred stock is estimated using a conversion plus dividend approach utilizing the trading value of the underlying common stock and an estimated premium for the preferred stock dividend and other preferences. Market price volatility of Fibrocell's common stock and a significant change in the estimated preferred stock premium could result in a significant impact to the fair value of the investment in Fibrocell preferred stock. As of
March 31, 2017
, the fair value of the Company's investment in Fibrocell preferred stock totaled
$1,193
. See Note
16
for additional discussion of the warrants.
Changes in the Fair Value of Investments in Preferred Stock
The following table summarizes the changes in the Level 3 investments in preferred stock during the
three months ended March 31, 2017
.
|
|
|
|
|
|
Three Months Ended
March 31, 2017
|
Beginning balance
|
$
|
129,545
|
|
Purchase of preferred stock
|
766
|
|
Dividend income from investments in preferred stock
|
3,926
|
|
Unrealized appreciation in the fair value of the investments in preferred stock
|
424
|
|
Ending balance
|
$
|
134,661
|
|
7
. Fair Value Measurements
The carrying amount of cash and cash equivalents, restricted cash, receivables, prepaid expenses and other current assets, accounts payable, accrued compensation and benefits, other accrued liabilities, and related party payables approximate fair value due to the short maturity of these instruments.
The following table presents the placement in the fair value hierarchy of financial assets that are measured at fair value on a recurring basis, including the items for which the fair value option has been elected, at
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
March 31,
2017
|
Assets
|
|
|
|
|
|
|
|
U.S. government debt securities
|
$
|
—
|
|
|
$
|
135,105
|
|
|
$
|
—
|
|
|
$
|
135,105
|
|
Equity securities
|
14,664
|
|
|
6,812
|
|
|
—
|
|
|
21,476
|
|
Preferred stock
|
—
|
|
|
—
|
|
|
134,661
|
|
|
134,661
|
|
Other
|
—
|
|
|
2,589
|
|
|
—
|
|
|
2,589
|
|
Total
|
$
|
14,664
|
|
|
$
|
144,506
|
|
|
$
|
134,661
|
|
|
$
|
293,831
|
|
The following table presents the placement in the fair value hierarchy of financial assets that are measured at fair value on a recurring basis, including the items for which the fair value option has been elected, at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
December 31,
2016
|
Assets
|
|
|
|
|
|
|
|
U.S. government debt securities
|
$
|
—
|
|
|
$
|
180,323
|
|
|
$
|
—
|
|
|
$
|
180,323
|
|
Equity securities
|
15,544
|
|
|
7,978
|
|
|
—
|
|
|
23,522
|
|
Preferred stock
|
—
|
|
|
—
|
|
|
129,545
|
|
|
129,545
|
|
Other
|
—
|
|
|
1,917
|
|
|
—
|
|
|
1,917
|
|
Total
|
$
|
15,544
|
|
|
$
|
190,218
|
|
|
$
|
129,545
|
|
|
$
|
335,307
|
|
The method used to estimate the fair value of the Level 1 assets in the tables above is based on observable market data as these equity securities are publicly-traded. The method used to estimate the fair value of the Level 2 short-term and long-term investments in the tables above is based on professional pricing sources for identical or comparable instruments, rather than direct observations of quoted prices in active markets. The method used to estimate the fair value of the Level 2 equity securities in the tables above is based on the quoted market price of the publicly-traded security, adjusted for a discount for lack of marketability. The methods used to estimate the fair value of the Level 3 assets are discussed in Note
6
.
There were
no
transfers between levels of the fair value hierarchy during the
three months ended March 31, 2017
.
The carrying values of the Company's long term debt approximates fair value due to the length of time to maturity and/or the existence of interest rates that approximate prevailing market rates. Significant financial liabilities measured on a recurring basis were
$2,160
and
$2,081
at
March 31, 2017
and
December 31, 2016
, respectively. The Company accounted for the contingent consideration liability to the members of Old EnviroFlight by recording its fair value as a liability on the date of the asset acquisition (Note
3
) whereby the regulatory and commercial milestones were valued using a probability-weighted discounted cash flow model using discount rates reflecting the time value of money and additional risk inherent in meeting the milestones. These fair value measurements were based on significant inputs not observable in the market and thus represented a Level 3 measurement. A significant change in unobservable inputs discussed above could result in a significant impact on the fair value of the Company's contingent consideration liability. The contingent consideration liability is remeasured to fair value at each reporting date until the contingency is resolved, and those changes in fair value are recognized in earnings. The changes in the fair value of the Level 3 liability during the
three months ended March 31, 2017
were as follows:
|
|
|
|
|
|
Three Months Ended
March 31, 2017
|
Beginning balance
|
$
|
2,081
|
|
Change in fair value of contingent consideration recognized in selling, general and administrative expenses
|
79
|
|
Ending balance
|
$
|
2,160
|
|
8
. Inventory
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Supplies, embryos and other production materials
|
$
|
1,868
|
|
|
$
|
1,835
|
|
Work in process
|
5,412
|
|
|
5,466
|
|
Livestock
|
10,268
|
|
|
11,752
|
|
Feed
|
1,535
|
|
|
2,086
|
|
Total inventory
|
$
|
19,083
|
|
|
$
|
21,139
|
|
9
. Property, Plant and Equipment, Net
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Land and land improvements
|
$
|
11,005
|
|
|
$
|
10,904
|
|
Buildings and building improvements
|
8,126
|
|
|
8,123
|
|
Furniture and fixtures
|
2,232
|
|
|
2,176
|
|
Equipment
|
46,340
|
|
|
44,392
|
|
Leasehold improvements
|
16,080
|
|
|
15,105
|
|
Breeding stock
|
3,824
|
|
|
3,893
|
|
Computer hardware and software
|
6,980
|
|
|
6,844
|
|
Trees
|
3,271
|
|
|
2,772
|
|
Construction and other assets in progress
|
7,157
|
|
|
4,513
|
|
|
105,015
|
|
|
98,722
|
|
Less: Accumulated depreciation and amortization
|
(36,687
|
)
|
|
(34,050
|
)
|
Property, plant and equipment, net
|
$
|
68,328
|
|
|
$
|
64,672
|
|
Depreciation expense was
$2,782
and
$2,133
for the
three months ended March 31, 2017
and
2016
, respectively.
10
. Goodwill and Intangible Assets, Net
The changes in the carrying amount of goodwill for the
three months ended March 31, 2017
are as follows:
|
|
|
|
|
Balance at December 31, 2016
|
$
|
157,175
|
|
Foreign currency translation adjustments
|
650
|
|
Balance at March 31, 2017
|
$
|
157,825
|
|
No
goodwill or accumulated impairment losses existed as of
March 31, 2017
and
December 31, 2016
.
Intangible assets consist of the following at
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Useful Life (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
Patents, developed technologies and know-how
|
15.9
|
|
$
|
238,513
|
|
|
$
|
(33,789
|
)
|
|
$
|
204,724
|
|
Customer relationships
|
6.5
|
|
10,700
|
|
|
(5,156
|
)
|
|
5,544
|
|
Trademarks
|
9.3
|
|
6,800
|
|
|
(1,986
|
)
|
|
4,814
|
|
In-process research and development
|
|
|
7,992
|
|
|
—
|
|
|
7,992
|
|
Total
|
|
|
$
|
264,005
|
|
|
$
|
(40,931
|
)
|
|
$
|
223,074
|
|
Intangible assets consist of the following at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
Patents, developed technologies and know-how
|
$
|
236,401
|
|
|
$
|
(29,748
|
)
|
|
$
|
206,653
|
|
Customer relationships
|
10,700
|
|
|
(4,672
|
)
|
|
6,028
|
|
Trademarks
|
6,800
|
|
|
(1,792
|
)
|
|
5,008
|
|
Covenant not to compete
|
370
|
|
|
(339
|
)
|
|
31
|
|
In-process research and development
|
7,895
|
|
|
—
|
|
|
7,895
|
|
Total
|
$
|
262,166
|
|
|
$
|
(36,551
|
)
|
|
$
|
225,615
|
|
The balance of in-process research and development as of
March 31, 2017
includes certain in-process research and development technology acquired in the Company's acquisition of Oxitec in September 2015, and amortization will begin once certain regulatory approvals have been obtained for the in-process programs.
Amortization expense was
$4,618
and
$3,515
for the
three months ended March 31, 2017
and
2016
, respectively.
11
. Lines of Credit and Long Term Debt
Lines of Credit
Trans Ova has a
$6,000
revolving line of credit with First National Bank of Omaha which matures on June 1, 2017. The line of credit bears interest at the greater of
2.95%
above the London Interbank Offered Rate or
3.00%
and the actual rate was
3.74%
as of
March 31, 2017
. As of
March 31, 2017
, there were
no
amounts outstanding. The amount available under the line of credit is based on eligible accounts receivable and inventory up to the maximum principal amount. The line of credit is collateralized by certain of Trans Ova's assets and contains certain restricted covenants that include maintaining minimum tangible net worth, maximum allowable annual capital expenditures and working capital. Trans Ova was in compliance with these covenants as of
March 31, 2017
.
Exemplar has a
$700
revolving line of credit with American State Bank which matures on October 30, 2017. The line of credit bears interest at
4.50%
per annum. As of
March 31, 2017
, there was an outstanding balance of
$410
.
Long Term Debt
Long term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Notes payable
|
$
|
5,343
|
|
|
$
|
5,453
|
|
Royalty-based financing
|
1,940
|
|
|
1,896
|
|
Other
|
713
|
|
|
599
|
|
Long term debt
|
7,996
|
|
|
7,948
|
|
Less current portion
|
388
|
|
|
386
|
|
Long term debt, less current portion
|
$
|
7,608
|
|
|
$
|
7,562
|
|
Trans Ova has a note payable to American State Bank which matures in April 2033 and has an outstanding principal balance of
$5,153
as of
March 31, 2017
. Trans Ova pays monthly installments of
$39
, which includes interest at
3.95%
. The note payable is collateralized by certain of Trans Ova's real estate and non-real estate assets.
AquaBounty has a royalty-based financing grant from the Atlantic Canada Opportunities Agency, a Canadian government agency, to provide funding of a research and development project. The total amount available under the award was
$2,155
, which AquaBounty claimed over a
five
year period. All amounts claimed by AquaBounty must be repaid in the form of a
10%
royalty on any products commercialized out of this research and development project until fully paid. Because the timing of commercialization is subject to additional regulatory considerations, the timing of repayment is uncertain. As of the acquisition
date in March 2013, AquaBounty had claimed
$1,952
of the available funds and this amount was recorded at its acquisition date fair value of
$1,107
. The Company accretes the difference of
$845
between the face value of amounts drawn and the acquisition date fair value over the expected period of repayment. Since the acquisition date, AquaBounty has claimed the remaining balance available under the grant, resulting in total long term debt of
$1,940
as of
March 31, 2017
.
Future maturities of long term debt are as follows:
|
|
|
|
|
2017
|
$
|
291
|
|
2018
|
430
|
|
2019
|
395
|
|
2020
|
365
|
|
2021
|
798
|
|
2022
|
346
|
|
Thereafter
|
3,431
|
|
Total
|
$
|
6,056
|
|
The AquaBounty royalty-based financing grant is not included in the table above due to the uncertainty of the timing of repayment.
12
. Income Taxes
Tax provisions for interim periods are calculated using an estimate of actual taxable income or loss for the respective period, rather than estimating the Company's annual effective income tax rate, as the Company is currently unable to reliably estimate its income for the full year. For the
three months ended March 31, 2017
, the Company had U.S. taxable income of approximately
$11,800
, for which
$236
in current income tax expense was recognized due to the alternative minimum tax. For the
three months ended March 31, 2017
, the Company recognized
$131
of current foreign income tax benefit. For the
three months ended March 31, 2016
, the Company had U.S. taxable loss of approximately
$9,900
, for which
no
current income tax benefit was recognized. For the
three months ended March 31, 2016
, the Company recognized
$93
of current foreign income tax benefit. For the
three months ended March 31, 2017
, the Company recorded deferred tax benefit of
$638
. For the
three months ended March 31, 2016
, the Company recorded deferred tax benefit of
$2,188
. The Company's net deferred tax assets, excluding certain deferred tax liabilities totaling
$16,504
, are offset by a valuation allowance due to the Company's history of net losses combined with an inability to confirm recovery of the tax benefits of the Company's losses and other net deferred tax assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
At
March 31, 2017
, the Company has loss carryforwards for U.S. federal income tax purposes of approximately
$242,800
available to offset future taxable income and federal and state research and development tax credits of approximately
$7,600
, prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended. These carryforwards will begin to expire in 2022. The Company's direct foreign subsidiaries have foreign loss carryforwards of approximately
$124,500
, most of which do not expire.
13
. Shareholders' Equity
Dividend to Shareholders
In January 2017, the Company distributed to its shareholders
1,776,557
shares of AquaBounty common stock valued at
$22,385
. The distribution constituted a dividend to shareholders of record as of January 9, 2017. In connection with the distribution and pursuant to the terms of the Company's equity incentive plans, the conversion terms of all outstanding options for shares of the Company's common stock as of January 9, 2017 were adjusted to reflect the value of the distribution with respect to shares of the Company's common stock by decreasing the exercise prices and increasing the number outstanding options. This adjustment resulted in
46,766
additional outstanding options at a weighted average exercise price of
$31.11
.
Components of Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Unrealized loss on investments
|
$
|
(109
|
)
|
|
$
|
(89
|
)
|
Loss on foreign currency translation adjustments
|
(32,858
|
)
|
|
(36,113
|
)
|
Total accumulated other comprehensive loss
|
$
|
(32,967
|
)
|
|
$
|
(36,202
|
)
|
14
. Share-Based Payments
The Company records the fair value of stock options issued to employees and non-employees as of the grant date as stock-based compensation expense. Stock-based compensation expense for employees and non-employees is recognized over the requisite service period, which is typically the vesting period. Stock-based compensation costs included in the consolidated statements of operations are presented below:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Cost of products
|
$
|
26
|
|
|
$
|
20
|
|
Cost of services
|
78
|
|
|
68
|
|
Research and development
|
2,193
|
|
|
2,565
|
|
Selling, general and administrative
|
5,597
|
|
|
10,535
|
|
Total
|
$
|
7,894
|
|
|
$
|
13,188
|
|
Intrexon Stock Option Plans
In April 2008, Intrexon adopted the 2008 Equity Incentive Plan (the "2008 Plan") for employees and nonemployees pursuant to which Intrexon's board of directors granted share based awards, including stock options, to officers, key employees and nonemployees. Upon the effectiveness of the 2013 Omnibus Incentive Plan (the "2013 Plan"),
no
new awards may be granted under the 2008 Plan. As of
March 31, 2017
, there were
564,943
stock options outstanding under the 2008 Plan.
Intrexon adopted the 2013 Plan for employees and nonemployees pursuant to which Intrexon's board of directors may grant share based awards, including stock options and shares of common stock, to employees, officers, consultants, advisors, and nonemployee directors. The 2013 Plan became effective upon the closing of the Company's initial public offering in August 2013, and as of
March 31, 2017
, there were
16,000,000
shares authorized for issuance under the 2013 Plan, of which
12,067,564
stock options were outstanding and
2,139,882
shares were available for grant. In March 2017, Intrexon's board of directors approved, subject to shareholder approval at Intrexon's annual meeting in June 2017, an increase of
2,000,000
shares of common stock to be reserved for issuance under the 2013 Plan.
Stock option activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (Years)
|
Balances at December 31, 2016
|
11,640,383
|
|
|
$
|
31.25
|
|
|
8.21
|
Granted
|
3,020,950
|
|
|
21.32
|
|
|
|
Adjustment due to dividend (Note 13)
|
46,766
|
|
|
31.11
|
|
|
|
Exercised
|
(10,343
|
)
|
|
(16.93
|
)
|
|
|
Forfeited
|
(2,058,040
|
)
|
|
(29.89
|
)
|
|
|
Expired
|
(7,209
|
)
|
|
(36.72
|
)
|
|
|
Balances at March 31, 2017
|
12,632,507
|
|
|
28.99
|
|
|
8.19
|
Exercisable at March 31, 2017
|
4,444,346
|
|
|
28.73
|
|
|
6.85
|
Intrexon currently uses authorized and unissued shares to satisfy share award exercises.
In October 2015, the compensation committee and the independent members of Intrexon's board of directors approved a compensation arrangement whereby the Company's Chief Executive Officer ("CEO") would receive a monthly salary. Previously, the CEO did not receive compensation for his services as an employee of the Company other than through his participation in the Company's Annual Executive Incentive Plan which became effective January 1, 2015. Pursuant to the compensation agreement, the CEO receives a base salary of
$200
per month payable in fully vested shares of Intrexon common stock with such shares subject to a
three
-year lock-up on resale. The monthly number of shares of common stock is calculated based on the closing price on the last trading day of each month and the shares are issued pursuant to the terms of a Restricted Stock Unit Agreement ("RSU Agreement") which was executed between Intrexon and the CEO pursuant to the terms of the 2013 Plan. The RSU Agreement became effective in November 2015, and had an initial term of
12 months
. In October 2016, the independent members of Intrexon's board of directors, with the recommendation of the compensation committee of the board of directors, approved a new RSU Agreement expiring on December 31, 2016, and in December 2016 once again approved a new RSU Agreement expiring March 31, 2017, both of which on the same terms as the original RSU Agreement. The fair value of the shares issued as compensation for services is included in selling, general and administrative expenses in the Company's consolidated statements of operations and totaled
$471
for the
three months ended March 31, 2017
and
2016
. In March 2017, the independent members of Intrexon's board of directors, with the recommendation of the compensation committee of the board of directors, approved a new RSU Agreement for the CEO providing for a term of
12 months
expiring on March 31, 2018 and on the same terms as the original RSU Agreement.
AquaBounty Stock Option Plans
As of
March 31, 2017
, there were
185,951
options outstanding, of which
183,840
were exercisable under the AquaBounty 2006 Equity Incentive Plan ("AquaBounty 2006 Plan") at a weighted average exercise price of
$7.90
per share. As of
December 31, 2016
, there were
185,951
options outstanding under this plan, of which
181,766
were exercisable at a weighted average exercise price of
$7.89
per share. The AquaBounty stock option data reflect a
1-for-30
reverse stock split of AquaBounty's common stock effective January 5, 2017.
In March 2016, AquaBounty's board of directors adopted the AquaBounty 2016 Equity Incentive Plan ("AquaBounty 2016 Plan") to replace the AquaBounty 2006 Plan. The AquaBounty 2016 Plan provides for the issuance of incentive stock options, non-qualified stock options and awards of restricted and direct stock purchases to directors, officers, employees and consultants of AquaBounty. The AquaBounty 2016 Plan was approved by AquaBounty's shareholders at its annual meeting in April 2016. Upon the effectiveness of the AquaBounty 2016 Plan,
no
new awards may be granted under the AquaBounty 2006 Plan. As of
March 31, 2017
, there were
no
options outstanding under the AquaBounty 2016 Plan.
15
. Commitments and Contingencies
Operating Leases
The Company leases certain facilities and equipment under noncancelable operating leases. The equipment leases are renewable at the option of the Company. At
March 31, 2017
, future minimum lease payments under operating leases having initial or remaining noncancelable lease terms in excess of one year are as follows:
|
|
|
|
|
2017
|
$
|
3,901
|
|
2018
|
6,376
|
|
2019
|
6,227
|
|
2020
|
6,235
|
|
2021
|
5,588
|
|
2022
|
4,780
|
|
Thereafter
|
19,265
|
|
Total
|
$
|
52,372
|
|
Rent expense, including other facility expenses, was
$2,301
and
$2,032
for the
three months ended March 31, 2017
and
2016
, respectively.
The Company maintains subleases for certain of its facilities. Rental income under sublease agreements was
$41
and
$335
for the
three months ended March 31, 2017
and
2016
, respectively. Future rental income is expected to be
$59
for
2017
,
$80
for
2018
, and
$67
for 2019.
Purchase Commitments
As of
March 31, 2017
, the Company had outstanding contractual purchase commitments of
$6,705
, which primarily relate to amounts that will be paid in 2018 and 2019 upon delivery of commercial non-browning apple trees.
Contingencies
In March 2012, Trans Ova was named as a defendant in a licensing and patent infringement suit brought by XY, LLC ("XY") alleging that certain of Trans Ova's activities breach a licensing agreement and infringe on patents that XY allegedly owns. Trans Ova filed a number of counterclaims in the case. In Colorado District Court, the matter proceeded to a jury trial in January 2016. The jury determined that XY and Trans Ova had each breached the licensing agreement and that Trans Ova had infringed the intellectual property of XY. In April 2016, the court issued its order, entering a jury award of damages to Trans Ova in the amount of
$528
and a jury award of damages to XY in the amount of
$6,066
, each with prejudgment interest. The order provides for the continuation of Trans Ova's license to XY's technology, subject to an ongoing royalty obligation for Trans Ova. Since the inception of the license, Trans Ova has remitted payments to XY pursuant to the terms of the original license agreement and has recorded these payments in cost of services in the consolidated statements of operations for the respective periods. For the period from inception of the agreement through the court's order, aggregate royalty and license payments were
$3,170
, of which
$2,759
had not yet been deposited by XY. For the three months ended March 31, 2016, the Company recorded litigation expense of
$4,228
, which is included in selling, general and administrative expenses on the accompanying consolidated statement of operations and represents the excess of the net damages awarded to XY, including prejudgment interest, over the liability previously recorded by Trans Ova for uncashed checks previously remitted to XY. In August 2016, Trans Ova deposited the net damages amount, including prejudgment interest, into the court's treasury, to be held until the appeals process is complete and final judgment amounts are determined. As of
March 31, 2017
, this amount is included in restricted cash on the accompanying consolidated balance sheet. In December 2016, Trans Ova elected to void the outstanding checks discussed above, and these amounts have been reclassified to other accrued liabilities on the accompanying consolidated balance sheets as of
March 31, 2017
and
December 31, 2016
. In 2017, Trans Ova and XY each filed an appeal seeking to overturn respective adverse rulings. As a result of an appeal decision, the damages awarded to either party could decrease, increase, or be eliminated. The appeal decision may remand to the Colorado District Court all, or a portion, of the appellate issues. In December 2016, XY filed a complaint for patent infringement and trade secret misappropriation against Trans Ova in the District Court of Waco, Texas. Since the claims in this 2016 complaint directly relate to the 2012 licensing dispute, Trans Ova filed and was granted a motion for change of venue to Colorado District Court. Trans Ova filed a motion to dismiss. This motion is now pending before the Colorado court. Trans Ova and the Company could elect to enter into a
settlement agreement in order to avoid the further costs and uncertainties of litigation, to modify the license to XY's technologies, or to recover monetary damages related to Trans Ova's antitrust counterclaims.
In May 2016,
two
putative shareholder class action lawsuits, captioned
Hoffman v. Intrexon Corporation et al.
and
Gibrall v. Intrexon Corporation et al.
, were filed in the U.S. District Court for the Northern District of California on behalf of purchasers of Intrexon's common stock between May 12, 2015 and April 20, 2016 (the "Class Period"). In July 2016, the court consolidated the lawsuits and appointed a lead plaintiff. The consolidated amended complaint names as defendants Intrexon and certain of Intrexon's current and former officers (the "Defendants"). It alleges, among other things, that the Defendants made materially false and/or misleading statements during the Class Period with respect to the Company's business, operations, and prospects in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended. The plaintiffs' claims are based in part upon allegations in a report published in April 2016 on the Seeking Alpha financial blog. The plaintiffs seek compensatory damages, interest and an award of reasonable attorneys' fees and costs. The Defendants moved to dismiss the case. On February 24, 2017, the court granted the Company's motion to dismiss the lawsuit on the grounds that the plaintiff failed to state a claim, while granting the plaintiff leave to amend. The plaintiff subsequently notified the court that it would seek to appeal the court's ruling rather than amend its complaint. On April 26, 2017, the court entered final judgment in the case. Any appeal must be filed by the plaintiff by May 26, 2017. The Company intends to continue to defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of this case.
In July 2016, a putative shareholder derivative action captioned
Basile v. Kirk et al.
was filed in the Circuit Court of Fairfax County, Virginia, against certain of the Company's directors, the Company's CEO, and Third Security, and naming the Company as a nominal defendant. The complaint alleges causes of action for breaches of fiduciary duty and unjust enrichment relating to the entry by the Company into the Services Agreement with Third Security. The plaintiff seeks, among other things, damages in an unspecified amount, disgorgement of improper benefits, appropriate equitable relief, and an award of attorney fees and other costs and expenses. The complaint is substantially similar to
two
separate demands made by shareholders concerning the Services Agreement and Mr. Kirk's compensation. The board of directors of the Company appointed a Special Litigation Committee ("SLC") consisting of independent directors to investigate the claims and allegations made in the derivative action and in the
two
shareholder demands and to decide on behalf of the Company whether the claims and allegations should be pursued. The
Basile
case was stayed pending the report of the SLC. In November 2016, the SLC completed its review and evaluation and unanimously determined that the claims were without merit because the compensation arrangements were the result of an informed and disinterested decision-making process and were fair to the Company, and that prosecution of the asserted claims was not in the best interest of Intrexon or its shareholders. Based upon the determination of the SLC, on February 24, 2017, the Company moved to dismiss the court action pursuant to Virginia statute and that motion is pending. There can be no assurance, however, regarding the ultimate outcome of the case.
In addition to the shareholder demands above, in June and July 2016,
two
shareholders made separate demands under Virginia law demanding that the Company file suit against certain of its current officers and directors for alleged breaches of fiduciary duty and other claims. The demands were based upon and asserted the allegations previously published in April 2016 in the Seeking Alpha financial blog. In July 2016, the Company's board of directors authorized the SLC to expand its review to include all such allegations. In February 2017, the SLC completed its review and evaluation and unanimously determined that there was no basis for any of the allegations, that the Company's officers and directors did not breach their fiduciary duties or any other applicable law, and that prosecution of the asserted claims was not in the best interest of Intrexon or its shareholders. Following the SLC's determination, in March 2017,
one
of the putative shareholders filed a derivative complaint captioned
Luger v. Kirk et al.
in the Circuit Court of Fairfax County, Virginia. The Company is a nominal defendant in this new action, and other defendants include certain of the Company's directors, the Company's CEO, and Third Security. The complaint alleges causes of action for breaches of fiduciary duty and unjust enrichment relating to the entry by the Company into the Services Agreement with Third Security, Mr. Kirk's compensation, and certain allegations contained in the April 2016 Seeking Alpha financial blog piece. Based on the determination of the SLC and a review of applicable law, the Company intends to defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of this case.
The Division of Enforcement of the U.S. Securities and Exchange Commission ("SEC") is conducting an investigation which the Company believes concerns certain issues raised by the foregoing matters. The Company has met with the SEC staff and is voluntarily cooperating with their investigation. The Company's board of directors has authorized the SLC to monitor the Company's interaction with the SEC staff.
The Company may become subject to other claims and assessments from time to time in the ordinary course of business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues liabilities for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. As of
March 31, 2017
and
December 31, 2016
, the Company does not believe that any such matters, individually or in the
aggregate, will have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows.
16
. Related Party Transactions
Third Security and Affiliates
The Company's CEO and Chairman of the board of directors of the Company is also the Senior Managing Director and CEO of Third Security and owns
100%
of the equity interests of Third Security.
In November 2015, the independent members of Intrexon's board of directors, with the recommendation of the audit committee of the board of directors, approved the execution of a Services Agreement ("Services Agreement") with Third Security pursuant to which Third Security provides the Company with certain professional, legal, financial, administrative, and other support services necessary to support the Company and its CEO. As consideration for providing these services, Third Security is entitled to a fee of
$800
per month to be paid in the form of fully-vested shares of the Company's common stock. The number of shares of common stock is calculated based on the closing price of the Company's common stock on the 15th day of each month. The payments made by the Company under the Services Agreement constitute, in the aggregate, an award under the 2013 Plan and are subject to the terms of the 2013 Plan (Note
14
). The Services Agreement had a term of
one year
, can be terminated by the Company at any time, and may be extended only by agreement of the parties, including approval of a majority of the independent members of Intrexon's board of directors. In October 2016, the independent members of Intrexon's board of directors, with the recommendation of the audit committee of the board of directors, approved an extension of the Services Agreement which expired on December 31, 2016. In December 2016, the independent members of Intrexon's board of directors, with the recommendation of the audit committee of the board of directors, approved an extension of the Services Agreement through December 2017. For the
three months ended March 31, 2017
and
2016
, the Company issued
103,930
shares and
79,870
shares, respectively, with values of
$2,039
and
$2,267
, respectively, to Third Security as payment for services pursuant to the Services Agreement. In addition to the foregoing Services Agreement, the Company reimburses Third Security for certain out-of-pocket expenses incurred on the Company's behalf, and the total expenses incurred by the Company under this arrangement were
$66
and
$46
for the
three months ended March 31, 2017
and
2016
, respectively.
See also Note
14
regarding compensation arrangements between the Company and its CEO.
Transactions with ECC Parties
In addition to entities controlled by Third Security, any entity in which the Company holds equity securities, including securities received as upfront or milestone consideration, and which also are party to a collaboration with the Company are considered to be related parties.
The Company holds promissory notes convertible into shares of Fibrocell common stock ("convertible note") and warrants to purchase shares of Fibrocell common stock. As of
March 31, 2017
and
December 31, 2016
, the value of the convertible note and warrants totaled
$2,315
and
$1,642
, respectively, and is included in other assets on the accompanying consolidated balance sheets. See Note
6
for additional discussion of the Company's investments in Fibrocell.
Other Related Parties
In June 2015, the Company entered into an agreement with Harvest, an investment fund sponsored by Harvest Capital Strategies, LLC, and a related party based on ownership in the fund by affiliates of Third Security. Harvest was established to invest in life science research and development opportunities that the Company offers to Harvest. These are investment proposals that are suitable for pursuit by a start-up venture, characterized by the agreement as "start-up opportunities." For such start-up opportunities, the Company provides Harvest with exclusive rights of first-look and first negotiation. For any opportunities it decides to pursue, Harvest establishes new collaboration entities which enter into an ECC with the Company in a designated field. The terms of such ECCs are negotiated between the Company and Harvest. In addition, the agreement provides the Company the right to present to Harvest the opportunity to invest in other ventures, including investment opportunities with respect to the Company's existing collaborations. Any such opportunities are presented at the Company's discretion on a non-exclusive basis. The agreement with Harvest does not limit the Company's ability to execute other collaborations and joint ventures with third parties. As consideration for providing exclusive rights of first-look and first negotiation for start-up opportunities, the Company receives a portion of the management fee collected by the fund sponsor of Harvest. These fees are included in other income in the accompanying consolidated statements of operations and totaled
$603
and
$645
for the
three months ended March 31, 2017
and
2016
, respectively.
17
. Net Loss per Share
The following table presents the computation of basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Historical net loss per share:
|
|
|
|
Numerator:
|
|
|
|
Net loss attributable to Intrexon
|
$
|
(31,399
|
)
|
|
$
|
(64,429
|
)
|
Denominator:
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
118,956,780
|
|
|
116,861,151
|
|
Net loss attributable to Intrexon per share, basic and diluted
|
$
|
(0.26
|
)
|
|
$
|
(0.55
|
)
|
The following potentially dilutive securities as of
March 31, 2017
and
2016
, have been excluded from the above computations of diluted weighted average shares outstanding for the
three months
then ended as they would have been anti-dilutive:
|
|
|
|
|
|
|
|
March 31,
|
|
2017
|
|
2016
|
Options
|
12,632,507
|
|
|
10,510,088
|
|
Warrants
|
—
|
|
|
117,702
|
|
Total
|
12,632,507
|
|
|
10,627,790
|
|
18
. Subsequent Events
In April 2017, the Company entered into a land lease agreement to commence in October 2017 to be used for the Company's Arctic apples. The initial term is through September 2037, and future minimum lease payments under this leasing arrangement total approximately
$4,100
. The Company has the right to terminate the lease with
six
months' advance written notice under certain circumstances as defined in the lease agreement.
In April 2017, the Company provided a commitment letter for an unsecured
$2,400
loan to Oragenics that will mature
two years
after issuance of the loan, bears interest at
12%
per annum, and is conditional on Oragenics raising at least an additional
$2,700
in gross proceeds from an equity financing.
In January 2017, the Company entered into a definitive agreement to acquire GenVec, Inc. ("GenVec"), a clinical-stage company and pioneer in the development of AdenoVerse™ gene delivery technology. Upon closing of the transaction, GenVec stockholders will receive
0.297
of a share of the Company's common stock in exchange for each share of GenVec common stock. This exchange ratio represents
$7.00
per share of GenVec's common stock divided by the Company's
five
-day volume weighted average price as of January 23, 2017. GenVec stockholders may also receive contingent consideration equal to
50%
of any milestone or royalty payments received under one of GenVec's collaboration agreements, provided such payments are received within
three years
after the closing of the transaction. Consummation of the transaction, anticipated in the second or third quarter of 2017, is subject to customary closing conditions, including GenVec stockholder approval.