UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to .
Commission File Number: 001-36042
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(301 ) 556-9900
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2022, 208,150,021 shares of common stock, no par value per share, were issued and outstanding.
PRECIGEN, INC.
FORM 10-Q
TABLE OF CONTENTS
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| 1A. | ||||||||
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Intrexon®, UltraCAR-T®, RheoSwitch®, UltraVector®, RTS®, and RheoSwitch Therapeutic System® are our and/or our affiliates' registered trademarks in the United States and ActoBiotics™, GenVec™, Precigen™, AdenoVerse™, ActoBio Therapeutics™, UltraPorator™, AttSite™, and Precigen Therapeutics™ are our and/or our affiliates' common law trademarks in the United States. This Quarterly Report on Form 10-Q, or Quarterly Report, and the information incorporated herein by reference contain references to trademarks, service marks, and trade names owned by us or other companies. Solely for convenience, trademarks, service marks, and trade names referred to in this Quarterly Report and the information incorporated herein, including logos, artwork, and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks, and trade names. We do not intend our use or display of other companies' trade names, service marks, or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Other trademarks, trade names, and service marks appearing in this Quarterly Report are the property of their respective owners. Unless the context requires otherwise, references in this Quarterly Report to "Precigen", "we", "us", and "our" refer to Precigen, Inc.
2
Special Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report, including statements regarding our strategy; future events, including their outcome or timing; future operations; future financial position; future revenue; projected costs; prospects; plans; objectives of management; and expected market growth, are forward-looking statements. The words "aim", "anticipate", "assume", "believe", "continue", "could", "due", "estimate", "expect", "intend", "may", "plan", "positioned", "potential", "predict", "project", "seek", "should", "target", "will", "would", and the negatives of these terms or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements may relate to, among other things: (i) the impact of the COVID-19 pandemic on our clinical trials, businesses, operating results, cash flows, and/or financial condition; (ii) the timeliness of regulatory approvals; (iii) our strategy and overall approach to our business model, our efforts to realign our business, and our ability to exercise more control and ownership over the development process and commercialization path; (iv) our ability to successfully enter new markets or develop additional product candidates, including the expected timing and results of investigational studies and preclinical and clinical trials, including any delays or potential delays as a result of the COVID-19 pandemic, whether with our collaborators or independently; (v) our ability to consistently manufacture our product candidates on a timely basis or to establish agreements with third-party manufacturers; (vi) our ability to successfully enter into optimal strategic relationships with our subsidiaries and operating companies that we may form in the future; (vii) our ability to hold or generate significant operating capital, including through partnering, asset sales, and operating cost reductions; (viii) actual or anticipated variations in our operating results; (ix) actual or anticipated fluctuations in competitors' or collaborators' operating results or changes in their respective growth rates; (x) our cash position; (xi) market conditions in our industry; (xii) the volatility of our stock price; (xiii) the ability, and the ability of our collaborators, to protect our intellectual property and other proprietary rights and technologies; (xiv) our ability, and the ability of our collaborators, to adapt to changes in laws or regulations or policies, including federal, state, and local government responses to the COVID-19 pandemic; (xv) outcomes of pending and future litigation; (xvi) the rate and degree of market acceptance of any products developed by us, our subsidiaries, collaborations, or joint ventures, or JVs, and competition from existing technologies and products or new technologies and products that may emerge; (xvii) our ability to retain and recruit key personnel; (xviii) expectations related to the use of proceeds from public offerings and other financing efforts; (xix) estimates regarding expenses, future revenue, capital requirements, and needs for additional financing; and (xx) the effects, duration, and severity of the ongoing COVID-19 pandemic and the actions we and others have taken or may take in response.
Forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance, and may also concern our expectations relating to our subsidiaries and other affiliates. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report.
We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in Part II, Item 1A, "Risk Factors," that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, JVs, or investments that we may make.
You should read this Quarterly Report, the documents that we reference in this Quarterly Report, our Annual Report on Form 10-K for the year ended December 31, 2021, the other reports we have filed with the Securities and Exchange Commission, or SEC, and the documents that we have filed as exhibits to our filings with the SEC completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
3
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Precigen, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| (Amounts in thousands, except share data) | September 30, 2022 | December 31, 2021 | |||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Short-term investments | |||||||||||
| Receivables | |||||||||||
Trade, less allowance for credit losses of $ | |||||||||||
Related parties, less allowance for credit losses of $ | |||||||||||
| Other | |||||||||||
| Inventory | |||||||||||
| Prepaid expenses and other | |||||||||||
| Current assets held for sale | |||||||||||
| Total current assets | |||||||||||
| Long-term investments | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Noncurrent assets held for sale | |||||||||||
| Total assets | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Precigen, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| (Amounts in thousands, except share data) | September 30, 2022 | December 31, 2021 | |||||||||
| Liabilities and Shareholders' Equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued compensation and benefits | |||||||||||
| Other accrued liabilities | |||||||||||
| Deferred revenue | |||||||||||
| Current portion of long-term debt | |||||||||||
| Current portion of lease liabilities | |||||||||||
| Related party payables | |||||||||||
| Current liabilities held for sale | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current portion | |||||||||||
Deferred revenue, net of current portion, including of $ | |||||||||||
| Lease liabilities, net of current portion | |||||||||||
| Deferred tax liabilities | |||||||||||
| Long-term liabilities held for sale | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 16) | |||||||||||
| Shareholders' equity | |||||||||||
Common stock, | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive (loss) income | ( | ||||||||||
| Total shareholders' equity | |||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Precigen, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| (Amounts in thousands, except share and per share data) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Collaboration and licensing revenues | $ | $ | $ | $ | |||||||||||||||||||
| Product revenues | |||||||||||||||||||||||
| Service revenues | |||||||||||||||||||||||
| Other revenues | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Cost of products | |||||||||||||||||||||||
| Cost of services | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Impairment of goodwill | |||||||||||||||||||||||
| Impairment of other noncurrent assets | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating loss | ( | ( | ( | ( | |||||||||||||||||||
| Other Expense, Net | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Other income (expense), net | ( | ( | |||||||||||||||||||||
| Total other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Equity in net income (loss) of affiliates | ( | ||||||||||||||||||||||
| Loss from continuing operations before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Income tax benefit | |||||||||||||||||||||||
| Loss from continuing operations | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | ( | ||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Net Loss per Share | |||||||||||||||||||||||
| Net loss from continuing operations per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net income (loss) from discontinued operations per share, basic and diluted | ( | ||||||||||||||||||||||
| Net income (loss) per share, basic and diluted | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Weighted average shares outstanding, basic and diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Precigen, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Unrealized gain (loss) on investments | ( | ( | |||||||||||||||||||||
| Loss on foreign currency translation adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Precigen, Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders' Equity
(Unaudited)
| (Amounts in thousands, except share data) | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Shareholders' Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| (Amounts in thousands, except share data) | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Shareholders' Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares issued upon vesting of restricted stock units and for exercises of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Precigen, Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders' Equity
(Unaudited)
| (Amounts in thousands, except share data) | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Shareholders' Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| — | — | ( | — | ( | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares issued upon vesting of restricted stock units and for exercises of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Shares issued for accrued compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Shares issued as payment for services | — | — | — | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| (Amounts in thousands, except share data) | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Shareholders' Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares issued upon vesting of restricted stock units and for exercises of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Shares issued as payment for services | — | — | — | ||||||||||||||||||||||||||||||||
| Shares issued in public offerings, net of issuance costs | — | — | — | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
Precigen, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| (Amounts in thousands) | 2022 | 2021 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Gain on disposals of assets, net | |||||||||||
| Impairment of goodwill | |||||||||||
| Impairment of other noncurrent assets | |||||||||||
| Gain on sale of discontinued operations | ( | ||||||||||
| Gain on debt retirement | ( | ||||||||||
| Amortization of premiums on investments, net | |||||||||||
| Equity in net (income) loss of affiliates | ( | ||||||||||
| Stock-based compensation expense | |||||||||||
| Shares issued as payment for services | |||||||||||
| Provision for credit losses | |||||||||||
| Accretion of debt discount and amortization of deferred financing costs | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Noncash gain on termination of operating leases | ( | ||||||||||
| Other noncash items | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables: | |||||||||||
| Trade | ( | ( | |||||||||
| Related parties | ( | ||||||||||
| Other | ( | ||||||||||
| Inventory | |||||||||||
| Prepaid expenses and other | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable | ( | ||||||||||
| Accrued compensation and benefits | ( | ( | |||||||||
| Other accrued liabilities | ( | ||||||||||
| Deferred revenue | ( | ||||||||||
| Lease liabilities | ( | ||||||||||
| Related party payables | ( | ||||||||||
| Other long-term liabilities | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
Precigen, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| (Amounts in thousands) | 2022 | 2021 | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of investments | $ | $ | ( | ||||||||
| Sales and maturities of investments | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Proceeds from sale of assets | |||||||||||
| Proceeds from sale of discontinued operations | |||||||||||
| Proceeds from repayment of notes receivable | |||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from issuance of shares, net of issuance costs | |||||||||||
| Repurchase of Convertible Notes | ( | ||||||||||
| Payments of long-term debt | ( | ( | |||||||||
| Proceeds from stock option exercises | |||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash | |||||||||||
| Beginning of period | |||||||||||
| End of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||
| Cash paid during the period for income taxes | |||||||||||
| Significant noncash activities | |||||||||||
| Accrued compensation paid in equity awards | $ | $ | |||||||||
| Purchases of property and equipment included in accounts payable and other accrued liabilities | |||||||||||
| Proceeds from sale of assets included in accounts receivable | |||||||||||
The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of September 30, 2022 and December 31, 2021 as shown above:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Cash and cash equivalents included in current assets held for sale | |||||||||||
| Restricted cash included in other assets | |||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
11
Precigen, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except share and per share data)
1. Organization
Precigen, Inc. ("Precigen"), a Virginia corporation, is a synthetic biology company with a focus on its discovery and clinical stage activities to advance the next generation of gene and cellular therapies to target the most urgent and intractable challenges in immuno-oncology, autoimmune disorders, and infectious diseases. Precigen operates through the following subsidiaries:
PGEN Therapeutics, Inc. ("PGEN Therapeutics") is a dedicated discovery and clinical stage biopharmaceutical company advancing the next generation of gene and cell therapies using precision technology to target urgent and intractable diseases in immuno-oncology, autoimmune disorders, and infectious diseases. PGEN Therapeutics is a wholly owned subsidiary of Precigen with primary operations in Maryland.
Precigen ActoBio, Inc. ("ActoBio") is pioneering a proprietary class of microbe-based biopharmaceuticals that enable expression and local delivery of disease-modifying therapeutics and is a wholly owned subsidiary of Precigen with primary operations in Belgium.
Exemplar Genetics, LLC, doing business as Precigen Exemplar ("Exemplar"), is committed to enabling the study of life-threatening human diseases through the development of MiniSwine Yucatan miniature pig research models and services, as well as enabling the production of cells and organs in its genetically engineered swine for regenerative medicine applications and is a wholly owned subsidiary of Precigen with primary operations in Iowa.
Effective October 1, 2019, Precigen transferred substantially all of its proprietary methane bioconversion platform ("MBP") assets to a wholly owned subsidiary, MBP Titan LLC ("MBP Titan"). MBP Titan's proprietary technology is designed to convert natural gas into more valuable and usable energy and chemical products through novel, highly engineered bacteria that utilize specific energy feedstocks. Prior to October 1, 2019, the operation transferred to MBP Titan was an operating division within Precigen. Beginning in the second quarter of 2020, the Company suspended MBP Titan's operations and began the process to wind down MBP Titan's activities and had substantially completed the wind down by December 31, 2020, with the final disposition of certain property and equipment and the facility operating lease occurring in January 2021. With the exception of certain assets and obligations with which the Company had a continuing involvement after the wind down, MBP Titan has been presented as discontinued operations for all periods presented. See Note 3 for further discussion.
On August 18, 2022, Precigen completed the previously announced sale of 100 % of the issued and outstanding membership interests in its wholly-owned subsidiary, Trans Ova Genetics, L.C. (“Trans Ova”), a provider of reproductive technologies, including services and products sold to cattle breeders and other producers. See Note 3 for further discussion. Trans Ova was formerly a separate reportable segment.
Precigen and its consolidated subsidiaries are hereinafter referred to as the "Company."
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed 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 condensed 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 September 30, 2022 and results of operations and cash flows for the periods ended September 30, 2022 and 2021. The year-end condensed 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, 2022, or for any other future annual or interim period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with
12
The accompanying condensed consolidated financial statements reflect the operations of Precigen and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Liquidity and Going Concern
During the nine months ended September 30, 2022, the Company incurred a loss from continuing operations of $57,601 and used $49,649 of cash in its operations, and as of September 30, 2022, had an accumulated deficit of $1,846,391 . The Company has incurred operating losses since its inception and management expects operating losses and negative cash flows from operations to continue for the foreseeable future and, as a result, the Company will require additional capital to fund its operations and execute its business plan. In addition, as of September 30, 2022, the Company had $153,770 in cash, cash equivalents, short-term investments, and restricted cash, and had no committed source of additional funding from either debt or equity financings, although the Company may, in its discretion, sell equity securities under the terms of the at-the-market sales agreement (See Note 13), subject to certain conditions and limitations. Given the Company’s current cash position and forecasted negative cash flows from operating activities for the foreseeable future, as well as convertible notes with a face value of $82,440 that are due on July 1, 2023 (See Note 11), management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to fund its operations on an ongoing basis is dependent upon the successful execution of management’s plans, which include raising additional capital in the near term. This additional capital could be raised through a combination of non-dilutive financings (including collaborations, strategic alliances, monetization of non-core assets, marketing, distribution or licensing arrangements), dilutive financings (including equity and/or debt financings) and, in the longer term, from revenue related to product sales, to the extent its product candidates receive marketing approval and can be commercialized. There can be no assurance that new financings or other transactions will be available to the Company on commercially acceptable terms, or at all. Also, any collaborations, strategic alliances, monetization of non-core assets or marketing, distribution or licensing arrangement may require the Company to give up some or all of its rights to a product or technology, which in some cases may be at less than the full potential value of such rights. If the Company is unable to obtain additional capital, the Company will assess its capital resources and may be required to delay, reduce the scope of, or eliminate some or all of its operations, which may include research and development and clinical trials. This may have a material adverse effect on the Company’s business, financial condition, results of operations and ability to operate as a going concern.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is not able to continue as a going concern.
Risks and Uncertainties
The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of therapeutic product candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from products and companies, and the technical risks associated with the successful research, development and clinical manufacturing of its therapeutic product candidates.
In addition, COVID-19 has had and continues to have an extensive impact on the global health and economic environments. Furthermore, there is uncertainty regarding the duration and severity of the ongoing pandemic, and the Company could experience delays or other pandemic-related events that may adversely impact the Company's clinical as well as preclinical pipeline candidates in the future.
The Company is closely monitoring the impact of COVID-19 on all aspects of its businesses. Given the dynamic nature of these circumstances, the full impact of the COVID-19 pandemic on the Company's ongoing business, results of operations, and overall financial performance in future periods cannot be reasonably estimated at this time, and it could have a material adverse effect on the Company's results of operations, cash flows, and financial position, including resulting impairments to goodwill and long-lived assets and additional credit losses.
See Note 3 for further discussion of the impact of COVID-19 on MBP Titan.
13
Net Loss per Share
Basic net loss per share is calculated by dividing net loss attributable to common shareholders by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, using the treasury-stock method. For purposes of the diluted net loss per share calculation, shares to be issued pursuant to convertible debt, stock options, RSUs, and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive to loss from continuing operations and, therefore, basic and diluted net loss per share were the same for all periods presented.
The following potentially dilutive securities as of September 30, 2022 and 2021, have been excluded from the above computations of diluted weighted average shares outstanding for the three and nine months then ended as they would have been anti-dilutive:
| September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Convertible debt | |||||||||||
| Options | |||||||||||
| Restricted stock units | |||||||||||
| Warrants | |||||||||||
| Total | |||||||||||
Segment Information
The Company's chief operating decision maker ("CODM") regularly reviews disaggregated financial information for various operating segments. The financial information regularly reviewed by the CODM and the operating segments, which were determined to be operating and reportable segments, are (i) Biopharmaceuticals and (ii) Exemplar. The Biopharmaceuticals reportable segment is primarily comprised of the Company's legal entities of PGEN Therapeutics and ActoBio. See Note 1 for a description of PGEN Therapeutics, ActoBio, and Exemplar. Corporate expenses, which are not allocated to the segments and are managed at a consolidated level, include costs associated with general and administrative functions, including the Company's finance, accounting, legal, human resources, information technology, business development, and investor relations functions. Corporate expenses exclude interest expense, depreciation and amortization, gain or loss on disposals of assets, stock-based compensation expense, loss on settlement agreement, and equity in net loss of affiliates and include unrealized and realized gains and losses on the Company's securities portfolio. The Company's segment presentation excludes amounts related to the operations of Trans Ova and MBP Titan which are reported as discontinued operations (Note 3). See Note 18 for further discussion of the Company's segments.
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.
14
Recently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"). Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments.
We adopted ASU 2020-06 on January 1, 2022 using the modified retrospective transition method, which resulted in an increase to our reported long-term debt outstanding, net of current portion, of $18,196 , a decrease to our additional paid-in capital of $36,868 , and a corresponding cumulative-effect reduction to our opening accumulated deficit of $18,672 . The adoption of ASU 2020-06 is expected to reduce non-cash interest expense related to existing convertible debt outstanding by approximately $11,800 for the year ending December 31, 2022, and did not have an impact on our consolidated cash flows. The use of the if-converted method did not have an impact on our overall earnings per share calculation.
Recently Issued Accounting Pronouncements Not Yet Adopted
There are no accounting standards which have not yet been adopted that are expected to have a significant impact on our financial statements and related disclosures.
3. Discontinued Operations
Where applicable, the notes to the accompanying condensed consolidated financial statements have been updated to reflect information pertaining to the Company's continuing operations based on the discontinued operations summarized below.
Trans Ova
As part of the Company's strategic shift to becoming a primarily healthcare company, as discussed in Note 1, on August 18, 2022, the Company completed the previously announced sale of 100 % of the issued and outstanding membership interests in its wholly-owned subsidiary,Trans Ova, to Spring Bidco LLC, a Delaware limited liability company for $170,000 and up to $10,000 in cash earn-out payments contingent upon the performance of Trans Ova in 2022 and 2023 (the “Transaction”). The Company received $162,306 in proceeds, net of certain transaction costs, on August 18, 2022, after giving effect to the preliminary closing purchase price adjustments. The final working capital adjustment of approximately $1,000 is expected to be received in the fourth quarter of 2022.
The Company elected to account for the contingent consideration arrangement as a gain contingency in accordance with ASC 450, Contingencies (Subtopic 450-30). Under this approach, the Company recognizes the contingent consideration receivable in earnings after the contingency is resolved. Accordingly, to determine the initial gain on the sale of Trans Ova, the Company did not include an amount related to the contingent consideration arrangement as part of the consideration received.
In connection with the Transaction, the Company, as of September 30, 2022, holds a total of $82,443 , in a segregated account to be used for certain permitted purposes, including resolution of the Company’s outstanding convertible notes as discussed further in Note 11. In addition, the Company is required to indemnify the Buyer for certain expenses incurred post close (related to covenants and certain additional specified liabilities including certain patent infringement lawsuits), if incurred, in amounts not to exceed $5,750 , which was recorded as a reduction of the gain on divestiture in the three and nine months ended September 30, 2022, and is included in other accrued liabilities as of September 30, 2022. To date, the Company has not received an indemnification claim.
15
The carrying values of the major classes of assets and liabilities included in assets and liabilities held for sale related to Trans Ova as of December 31, 2021, are as follows:
| December 31, 2021 | ||||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | |||||||
| Trade receivables, net | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Right-of-use assets | ||||||||
| Other noncurrent assets | ||||||||
| Total assets held for sale | $ | |||||||
| Liabilities | ||||||||
| Accounts payable | $ | |||||||
| Accrued compensation and benefits | ||||||||
| Other accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Current portion of long-term debt | ||||||||
| Other current liabilities | ||||||||
| Long-term debt, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities held for sale | $ | |||||||
16
The following table presents the financial results of discontinued operations related to Trans Ova for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Product revenues | $ | $ | $ | $ | |||||||||||||||||||
| Service revenues | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Cost of products | |||||||||||||||||||||||
| Cost of services | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income (loss) | ( | ||||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Gain on divestiture | |||||||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||
| Income tax (expense) benefit | |||||||||||||||||||||||
| Income (loss) from discontinued operations | $ | $ | ( | $ | $ | ||||||||||||||||||
The following table presents the significant noncash items, purchases of property, plant and equipment, and proceeds from sales of assets for the discontinued operations related to Trans Ova that are included in the accompanying condensed consolidated statements of cash flows:
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Adjustments to reconcile net income to net cash used in operating activities | |||||||||||
| Depreciation and amortization | $ | $ | |||||||||
| Loss on disposal of assets | |||||||||||
| Stock-based compensation expense | |||||||||||
| Provision for credit losses | |||||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Proceeds from sale of assets | |||||||||||
MBP Titan
As a result of market uncertainty driven by the COVID-19 pandemic and the state of the energy sector raising significant challenges for the strategic alternatives pursued by MBP Titan, beginning in the second quarter of 2020 and throughout the remainder of 2020, the Company suspended MBP Titan's operations, preserved certain of MBP Titan's intellectual property, terminated all of its personnel, and undertook steps to dispose of its other assets and obligations. The wind down of MBP Titan's activities was substantially completed by December 31, 2020, with the final disposition of certain property and equipment and the facility operating lease occurring in January 2021. This discontinuation of operations represented the continuation of a strategic shift to becoming a primarily healthcare company advancing technologies and products that address complex healthcare challenges that the Company commenced in 2020. The assets, liabilities, and expenses related to the discontinued operations of MBP Titan are presented as discontinued operations in the accompanying condensed consolidated financial statements for all periods.
The January 2021 sale of property and equipment resulted in a gain on disposal of assets of $464 , which is included in income from discontinued operations in the accompanying condensed consolidated statement of operations for the nine months ended
17
September 30, 2021. In January 2021, the Company executed termination and recapture agreements with the landlord of the leased facility used in MBP Titan's operations, thereby relieving the Company of all of its obligations related to the facility that were originally due to expire in July 2025. This lease termination resulted in a gain of $4,602 , which is also included in income from discontinued operations in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2021.
After the wind down of MBP Titan, certain assets and contractual obligations which were previously managed by MBP Titan continue to be managed at the Precigen corporate level. These remaining assets and contractual obligations include the Company's equity interest in and collaboration agreements with Intrexon Energy Partners, LLC ("Intrexon Energy Partners"), and Intrexon Energy Partners II, LLC ("Intrexon Energy Partners II"), including the associated deferred revenue remaining under each collaboration agreement which was recognized as revenue in the third quarter of 2022 upon acquiring control of these entities (See Notes 2, 4, 5 and 16), as well as the associated intellectual property developed by MBP Titan to date. These assets, liabilities, and related historical revenue and equity losses are included in the Company's operating results from continuing operations in the accompanying condensed consolidated financial statements for all periods presented as a result of the Company's continuing involvement.
There were no The following table presents the financial results of discontinued operations related to MBP Titan for the three and nine months ended September 30, 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2021 | 2021 | |||||||||||||
| Operating gain | ||||||||||||||
| Operating gain | ||||||||||||||
| Gain from discontinued operations | $ | $ | ||||||||||||
The following table presents the significant noncash items, purchases of property, plant and equipment, and proceeds from sales of assets for the discontinued operations related to MBP Titan for the nine months ended September 30, 2021 that are included in the accompanying condensed consolidated statements of cash flows.
| Nine Months Ended September 30, | ||||||||
| 2021 | ||||||||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Gain on disposals of assets | $ | ( | ||||||
| Noncash gain on termination of leases | ( | |||||||
| Cash flows from investing activities | ||||||||
| Proceeds from sales of assets | ||||||||
4. Investments in Joint Ventures
Intrexon Energy Partners
In 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 that governs the affairs and conduct of business of Intrexon Energy Partners, a JV formed to optimize and scale-up the Company's MBP technology for the production of certain fuels and lubricants. The Company also entered into an exclusive channel collaboration ("ECC") with Intrexon Energy Partners providing exclusive rights to the Company's technology for the use in bioconversion for the production of certain fuels and lubricants, 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, Precigen 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, 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. Intrexon
18
Energy Partners is governed by the Intrexon Energy Partners Board, which has five members. Prior to Precigen’s purchase of certain membership interests from the IEP Investors in the third quarter of 2022 as discussed below and in Notes 3 and 16, two members of the Intrexon Energy Partners Board were designated by the Company and three members were designated by a majority of the IEP Investors. Upon accumulating 87.5 % of the membership interests owned by the IEP Investors in the third quarter of 2022, the Company now has the right to designate all members of the Intrexon Energy Partners Board.
The Company's investment in Intrexon Energy Partners was $(428 ) as of December 31, 2021, and is included in other accrued liabilities in the accompanying condensed consolidated balance sheets, which represents the Company's equity in losses for contractually committed contributions to Intrexon Energy Partners.
See Notes 3 and 16 for additional discussion regarding the Company's investment in Intrexon Energy Partners.
Intrexon Energy Partners II
In 2015, the Company and certain investors (the "IEPII Investors"), entered into a Limited Liability Company Agreement that governs the affairs and conduct of business of Intrexon Energy Partners II, a JV formed to utilize the Company's MBP technology 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 that 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. Precigen 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, 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. Prior to Precigen’s purchase of the membership interests from the IEPII Investors in the third quarter of 2022, one member of the Intrexon Energy Partners II Board was designated by the Company and four members were designated by a majority of the IEPII Investors. Upon acquisition of all of the membership interests owned by the IEPII Investors in the third quarter of 2022 (the Company purchased the remaining 2.9 % membership units in the fourth quarter of 2022), the Company now has the right to designate all members of the Intrexon Energy Partners II Board.
The Company's investment in Intrexon Energy Partners II was $(435
See Notes 3 and 16 for additional discussion regarding the Company's investment in Intrexon Energy Partners II.
Acquisition of Membership Interests in Intrexon Energy Partners and Intrexon Energy Partners II
As discussed in Note 16, under the Arbitration Matter (as defined in Note 16) the Company acquired certain membership interests in both Intrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022 for an aggregate amount of approximately $7,000 . The Company recorded the $7,000 payment as a reduction of the revenue that was recognized in the third quarter of 2022 (from deferred revenue – see Note 5) upon the Company obtaining control of Intrexon Energy Partners and Intrexon Energy Partners II. The fair value of the net assets of Intrexon Energy Partners and Intrexon Energy Partners II at the acquisition date is deemed to be substantially $0 .
5. Collaboration and Licensing Revenue
19
The Company recognizes the reimbursement payments received for research and development efforts in the period when the services are performed, in connection with the single performance obligation discussed above. The reimbursements relate specifically to the Company's efforts to provide services, and the reimbursements are consistent with what the Company would typically charge other collaborators for similar services. The Company assesses the uncertainty of when and if any milestones will be achieved to determine whether the milestone is included in the transaction price. The Company then assesses whether the revenue is constrained based on whether it is probable that a significant reversal of revenue would not occur when the uncertainty is resolved. Royalties, including sales-based milestones, received under the agreements will be recognized as revenue when sales have occurred because the Company applies the sales- or usage-based royalties recognition exception provided for under ASC Topic 606. The Company determined the application of this exception is appropriate because at the time the royalties are generated, the technology license granted in the agreement is the predominant item to which the royalties relate.
The Company determines whether collaborations and licensing agreements are individually significant for disclosure based on a number of factors, including total revenue recorded by the Company pursuant to collaboration and licensing agreements, collaborators or licensees with equity method investments, or other qualitative factors. Collaboration and licensing revenues generated from consolidated subsidiaries are eliminated in consolidation.
Intrexon Energy Partners and Intrexon Energy Partners II Collaborations
In July 2022, the Company obtained control of the Board of Managers of each of Intrexon Energy Partners and Intrexon Energy Partners II (as discussed in Notes 3, 4, and 16). Based on its assessment of the status of each collaboration, the Company determined that there was a substantial likelihood that no further performance obligations would occur under the respective collaboration agreements. Accordingly, the Company recognized the remaining balance of deferred revenue associated with Intrexon Energy Partners and Intrexon Energy Partners II, less the amounts paid to acquire the membership interests of the investors for an aggregate amount of approximately $7,000 .
The following table summarizes the amounts recorded as revenue in the condensed consolidated statements of operations for each significant counterparty to a collaboration or licensing agreement for the three and nine months ended September 30, 2022 and 2021.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Intrexon Energy Partners, LLC | $ | $ | $ | ||||||||||||||||||||
| Intrexon Energy Partners II, LLC | |||||||||||||||||||||||
| Castle Creek Biosciences, Inc. | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total (1) | $ | $ | $ | $ | |||||||||||||||||||
(1)Collaboration and licensing revenues recognized are associated with upfront and milestone payments which were previously deferred.
Excluding the agreements with Intrexon Energy Partners and Intrexon Energy Partners II, there have been no significant changes to the agreements with our collaborators and licensees in the three and nine months ended September 30, 2022.
20
Deferred Revenue
Deferred revenue primarily consists of upfront and milestone consideration received for the Company's collaboration and licensing agreements. Revenue is recognized as services are performed. The arrangements classified as long-term (of which $0 and $21,205 was related to agreements with Intrexon Energy Partners and Intrexon Energy Partners II as of September 30, 2022 and December 31, 2021, respectively ) are not active while the respective counterparties evaluate the status of the project and its desired future development activities since the Company cannot reasonably estimate the amount of service to be performed over the next year.
Deferred revenue consisted of the following:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Collaboration and licensing agreements | $ | $ | |||||||||
| Prepaid product and service revenues | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
| Current portion of deferred revenue | $ | $ | |||||||||
| Long-term portion of deferred revenue | |||||||||||
| Total | $ | $ | |||||||||
6. 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 September 30, 2022:
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Aggregate Fair Value | ||||||||||||||||||||
| U.S. government debt securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of available-for-sale investments as of December 31, 2021:
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Aggregate Fair Value | ||||||||||||||||||||
| U.S. government debt securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
The estimated fair value of available-for-sale investments classified by their contractual maturities as of September 30, 2022 was:
| Due within one year | $ | ||||
| After one year through two years | |||||
| Total | $ | ||||
Changes in market interest rates and bond yields cause certain investments to fall below their cost basis, resulting in unrealized losses on investments.
21
7. Fair Value Measurements
The carrying amount of cash and cash equivalents, restricted cash, receivables, accounts payable, accrued compensation and benefits, other accrued liabilities, and related party payables approximate fair value due to the short maturity of these instruments.
Assets
The following table presents the placement in the fair value hierarchy of financial assets that are measured at fair value on a recurring basis as of September 30, 2022:
| Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | September 30, 2022 | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| U.S. government debt securities | $ | $ | $ | $ | |||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The following table presents the placement in the fair value hierarchy of financial assets that are measured at fair value on a recurring basis as of December 31, 2021:
| Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | December 31, 2021 | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| U.S. government debt securities | $ | $ | $ | $ | |||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The method used to estimate the fair value of the Level 2 short-term and long-term debt 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.
Liabilities
The fair value of the 3.50 % convertible senior notes due 2023 (the "Convertible Notes") (Note 11) was approximately $81,000 and $160,000 as of September 30, 2022 and December 31, 2021, respectively, and is based on the recent third-party trades of the instrument as of the balance sheet date. The fair value of the Convertible Notes is classified as Level 2 within the fair value hierarchy as there is not an active market for the Convertible Notes, however, third-party trades of the instrument are considered observable inputs. The Convertible Notes are reflected on the accompanying condensed consolidated balance sheets at amortized cost, which was $82,069 and $179,882 as of September 30, 2022 and December 31, 2021, respectively (see Note 2 regarding adoption of ASU 2020-06 on January 1, 2022).
8. Inventory
Inventory consists of the following:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Supplies, embryos and other production materials | $ | $ | |||||||||
| Livestock | |||||||||||
| Total inventory | $ | $ | |||||||||
22
9. Property, Plant and Equipment, Net
Property, plant and equipment consist of the following:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Land and land improvements | $ | $ | |||||||||
| Buildings and building improvements | |||||||||||
| Furniture and fixtures | |||||||||||
| Equipment | |||||||||||
| Leasehold improvements | |||||||||||
| Breeding stock | |||||||||||
| Computer hardware and software | |||||||||||
| Construction and other assets in progress | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
Depreciation expense was $564 and $735 for the three months ended September 30, 2022 and 2021, respectively, and $1,833 and $2,184 for the nine months ended September 30, 2022 and 2021, respectively.
10. Goodwill and Intangible Assets, Net
The changes in the carrying amount of goodwill for the nine months ended September 30, 2022 were as follows:
| Balance at December 31, 2021 | $ | ||||
| Impairment | ( | ||||
| Foreign currency translation adjustments | ( | ||||
| Balance at September 30, 2022 | $ | ||||
The Company recorded $482 of goodwill impairment related to the total goodwill assigned to one reporting unit within the biopharmaceutical segment during the first quarter of 2022.
The Company had $14,483 and $14,001 of cumulative impairment losses as of September 30, 2022 and December 31, 2021, respectively.
Intangible assets consist of the following as of September 30, 2022:
| Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Patents, developed technologies and know-how | $ | $ | ( | $ | |||||||||||||
| Customer relationships | ( | ||||||||||||||||
| Trademarks | ( | ||||||||||||||||
| Total | $ | $ | ( | $ | |||||||||||||
23
Intangible assets consist of the following as of December 31, 2021:
| Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Patents, developed technologies and know-how | $ | $ | ( | $ | |||||||||||||
| Customer relationships | ( | ||||||||||||||||
| Trademarks | ( | ||||||||||||||||
| Total | $ | $ | ( | $ | |||||||||||||
Amortization expense was $1,151 and $1,315 for the three months ended September 30, 2022 and 2021, respectively, and $3,637 and $3,990 for the nine months ended September 30, 2022 and 2021, respectively.
11. Lines of Credit and Long-Term Debt
Lines of Credit
Exemplar has a $700 revolving line of credit with American State Bank that matured on October 31, 2022, and is currently being renegotiated with the bank. As of September 30, 2022, the line of credit bore interest at a stated rate of 4.00 % per annum. As of September 30, 2022 and December 31, 2021, there was no
Long-Term Debt
Long-term debt consists of the following:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Convertible debt (1) | $ | $ | |||||||||
| Other | |||||||||||
| Long-term debt | |||||||||||
| Less current portion | |||||||||||
| Long-term debt, less current portion | $ | $ | |||||||||
(1)See Note 2 regarding adoption of ASU 2020-06 as of January 1, 2022.
Convertible Debt
Precigen Convertible Notes
In July 2018, Precigen completed a registered underwritten public offering of $200,000 aggregate principal amount of Convertible Notes and issued the Convertible Notes under an indenture (the "Base Indenture") between Precigen and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented by the First Supplemental Indenture (together with the Base Indenture, the "Indenture"). Precigen received net proceeds of $193,958 after deducting underwriting discounts and offering expenses of $6,042 .
The Convertible Notes are senior unsecured obligations of Precigen and bear interest at a rate of 3.50 % per year, payable semiannually in arrears on January 1 and July 1 of each year beginning on January 1, 2019. The Convertible Notes mature on July 1, 2023 and are repayable in cash, unless earlier repurchased or converted. Upon conversion by the holders, the Convertible Notes are convertible into cash, shares of Precigen's common stock or a combination of cash and shares, at Precigen's election. The initial conversion rate of the Convertible Notes is 58.6622 shares of Precigen common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $17.05 per share of common stock). The conversion rate is subject to adjustment upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date as defined in the Indenture, Precigen will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event in certain circumstances. Prior to April 1, 2023, the holders may convert the Convertible Notes at their option only upon the satisfaction of the following circumstances:
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•During any calendar quarter commencing after the calendar quarter ended on September 30, 2018, if the last reported sales price of Precigen's common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;
•During the five business day period after any five consecutive trading day period in which the trading price, as defined in the Indenture, for the Convertible Notes is less than 98 % of the product of the last reported sales price of Precigen's common stock and the conversion rate for the Convertible Notes on each such trading day; or
•Upon the occurrence of specified corporate events as defined in the Indenture.
None of the above events allowing for conversion prior to April 1, 2023 occurred during the three or nine months ended September 30, 2022. On or after April 1, 2023 until June 30, 2023, holders may convert their Convertible Notes at any time. The Convertible Notes do not allow Precigen to call the debt prior to the maturity date.
If Precigen undergoes a fundamental change, as defined in the Indenture, holders of the Convertible Notes may require Precigen to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Indenture contains customary events of default, as defined in the agreement, and, if any of the events occur, could require repayment of a portion or all of the Convertible Notes, including accrued and unpaid interest. Additionally, the Indenture provides that Precigen shall not consolidate with or merge with or into, or sell, convey, transfer or lease all or substantially all of its properties and assets to, another entity, unless (i) the surviving entity is organized under the laws of the United States and such entity expressly assumes all of Precigen's obligations under the Convertible Notes and the Indenture; and (ii) immediately after such transaction, no default or event of default has occurred and is continuing under the Indenture.
The net proceeds received from the issuance of the Convertible Notes were initially allocated between long-term debt, the liability component, in the amount of $143,723 , and additional paid-in capital, the equity component, in the amount of $50,235 . Additional paid-in capital was further reduced by $13,367 of deferred taxes resulting from the difference between the carrying amount and the tax basis of the Convertible Notes that is created by the equity component, which also resulted in deferred tax benefit recognized from the reversal of valuation allowances on the then current year domestic operating losses in the same amount.
As described in Note 2, the Company adopted ASU 2020-06 on January 1, 2022. Pursuant to ASU 2020-06, the equity components of the Convertible Notes separated from the debt components as required under the cash conversion model is required to be recombined into the Convertible Notes as a single instrument upon the adoption of ASU 2020-06. The Convertible Notes shall be accounted for as if the conversion option had not been separated. As the Company elected the modified retrospective approach, the difference between the accounting under the cash conversion model and new model after the adoption of ASU 2020-06 (i.e., the single debt instrument with no separation) was recorded as an adjustment on the adoption date (i.e., January 1, 2022) through accumulated deficit. Tax accounting consequences of the adoption also required the reversal of the previously reported deferred tax benefit on the date of adoption.
Adoption of ASU 2020-06 resulted in an increase to long-term debt outstanding, net of current portion, of $18,196 , a decrease to additional paid-in capital of $36,868 , and a decrease to accumulated deficit of $18,672 . Interest expense recognized on the convertible notes in future periods will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost.
As discussed in Note 3, in connection with the sale of Trans Ova, the Company transferred a total of $200,000 into a segregated account to be used for certain permitted purposes, including resolution of the Company's outstanding Convertibles Notes. During and subsequent to the quarter ended September 30, 2022, the Company executed open market purchases of a portion of the outstanding Convertible Notes. During the three months ended September 30, 2022, the Company successfully retired $117,560 of principal balance from these purchases and recorded a gain on extinguishment of debt of approximately $853 , which was recorded within Other income (expense), net, within the condensed consolidated statements of operations. As of September 30, 2022, $82,443 remained in the segregated account noted above for permitted purposes including the resolution of the Company's outstanding Convertible Notes. Additionally, in October and November 2022, the Company completed additional purchases, retiring an additional principal balance totaling $26,400 .
As of September 30, 2022, the outstanding principal balance on the Convertible Notes was $82,440 and their carrying value was $82,069 . The effective interest rate on the Convertible Notes, including amortization of the long-term debt discount and
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debt issuance costs, is 4.25 %. As of September 30, 2022, the unamortized debt discount and debt issuance costs related to the Convertible Notes totaled $371 .
The components of interest expense related to the Convertible Notes were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cash interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Non-cash interest expense | |||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
Accrued interest of $721 is included in other accrued liabilities on the accompanying condensed consolidated balance sheet as of September 30, 2022.
Future Maturities
The Convertible Notes mature on July 1, 2023.
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. The Company has U.S. taxable income, prior to utilization of net operating losses, of approximately $44,300 for the three months ended September 30, 2022, and had U.S taxable loss of approximately $24,700 for the three months ended September 30, 2021. The Company has U.S. taxable income, prior to utilization of net operating losses, of $38,000 for the nine months ended September 30, 2022 and had U.S. taxable losses of $82,200 for the nine months ended September 30, 2021. The following table presents the components of income tax benefit from continuing operations.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Current foreign income tax expense (benefit) from continuing operations | $ | $ | $ | ( | $ | ||||||||||||||||||
| Deferred income tax benefit from continuing operations | ( | ( | ( | ( | |||||||||||||||||||
| Total income tax benefit from continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The Company's net deferred tax assets 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.
As of September 30, 2022, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $818,000 available to offset future taxable income, including approximately $603,000 generated after 2017, U.S. capital loss carryforwards of approximately $212,500 , and federal and state research and development tax credits of approximately $11,700 , prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended. Net operating loss carryforwards generated prior to 2018 have begun to expire in 2022, and capital loss carryforwards will expire if unutilized beginning in 2024. As of September 30, 2022, the Company's foreign subsidiaries have foreign loss carryforwards of approximately $64,200 , most of which do not expire.
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13. Shareholders' Equity
Issuances of Precigen Common Stock
In January 2021, the Company closed a public offering of 17,250,000 shares of its common stock, resulting in net proceeds of $121,045 , after deducting underwriting discounts and of capitalized offering expenses.
See Note 11 for discussion regarding conversion features of the convertible notes.
Share Lending Agreement
Concurrently with the offering of the Convertible Notes (Note 11), Precigen entered into a share lending agreement (the "Share Lending Agreement") with J.P. Morgan Securities LLC (the "Share Borrower") pursuant to which Precigen loaned and delivered 7,479,431 shares of its common stock (the "Borrowed Shares") to the Share Borrower. The Share Lending Agreement will terminate, and the Borrowed Shares will be returned to Precigen within business days of such termination, upon (i) termination by the Share Borrower or (ii) the earliest to occur of (a) October 1, 2023 and (b) the date, if any, on which the Share Lending Agreement is either mutually terminated or terminated by one party upon a default by the other party. The Share Borrower maintains collateral in the form of cash or certain permitted non-cash collateral with a market value at least equal to the market value of the Borrowed Shares as security for the obligation of the Share Borrower to return the Borrowed Shares when required by the terms above. The Borrowed Shares were offered and sold to the public at a price of $13.37 per share under a registered offering (the "Borrowed Shares Offering"). Precigen did not receive any proceeds from the sale of the Borrowed Shares to the public or any lending fees from the Share Lending Agreement. The Share Borrower or its affiliates received all the proceeds from the sale of the Borrowed Shares to the public. Affiliates of Third Security purchased all of the shares of common stock in the Borrowed Shares Offering.
The Share Lending Agreement was entered into at fair value and met the requirements for equity classification. Therefore, the value is netted against the issuance of the Borrowed Shares in additional paid-in capital. Additionally, the Borrowed Shares are not included in the denominator for loss per share attributable to Precigen shareholders unless the Share Borrower defaults on the Share Lending Agreement.
At-the-Market Sales Agreement
On August 9, 2022, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, no par value per share (the “Shares”), through the Agent. The offering and sale of up to $100,000 of the Shares has been registered under the Securities Act of 1933. The Company has no obligation to sell any of the Shares under the Sales Agreement, and may at any time suspend or terminate the offering of its common stock pursuant to the Sales Agreement upon notice and subject to other conditions. The Company intends to use the proceeds of any sales to fund the development of clinical and preclinical product candidates and for working capital and other general corporate purposes.
No Shares were sold in connection with the Sales Agreement during the three months ended September 30, 2022.
Components of Accumulated Other Comprehensive (Loss) Income
The components of accumulated other comprehensive (loss) income are as follows:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Unrealized loss on investments | $ | ( | $ | ( | |||||||
| Income (loss) on foreign currency translation adjustments | ( | ||||||||||
| Total accumulated other comprehensive (loss) income | $ | ( | $ | ||||||||
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14. Share-Based Payments
The Company measures the fair value of stock options and restricted stock units ("RSUs") issued to employees and nonemployees as of the grant date for recognition of stock-based compensation expense. Stock-based compensation expense for employees and nonemployees is recognized over the requisite service period, which is typically the vesting period. Stock-based compensation costs included in the condensed consolidated statements of operations are presented below:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cost of products | $ | $ | $ | $ | |||||||||||||||||||
| Cost of services | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Discontinued operations | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Precigen Stock Option Plans
In April 2008, Precigen adopted the 2008 Equity Incentive Plan (the "2008 Plan") for employees and nonemployees pursuant to which Precigen'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 September 30, 2022, there were 14,843 stock options outstanding under the 2008 Plan.
Precigen adopted the 2013 Plan for employees and nonemployees pursuant to which Precigen'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 in August 2013, and as of September 30, 2022, there were 37,000,000 shares authorized for issuance under the 2013 Plan, of which 13,404,135 stock options and 82,055 RSUs were outstanding and 12,833,550 shares were available for grant.
In April 2019, Precigen adopted the 2019 Incentive Plan for Non-Employee Service Providers (the "2019 Plan"), which became effective upon shareholder approval in June 2019. The 2019 Plan permits the grant of share-based awards, including stock options, restricted stock awards, and RSUs, to non-employee service providers, including board members. As of September 30, 2022, there were 12,000,000 shares authorized for issuance under the 2019 Plan, of which 1,898,208 stock options and 615,760 RSUs were outstanding and 7,243,025 shares were available for grant.
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Stock option activity was as follows:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |||||||||||||||
| Balances at December 31, 2021 | $ | ||||||||||||||||
| Granted | |||||||||||||||||
| Exercised | ( | ||||||||||||||||
| Forfeited | ( | ||||||||||||||||
| Expired | ( | ||||||||||||||||
| Balances at September 30, 2022 | |||||||||||||||||
| Exercisable at September 30, 2022 | |||||||||||||||||
RSU activity was as follows:
| Number of Restricted Stock Units | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (Years) | |||||||||||||||
| Balances at December 31, 2021 | $ | ||||||||||||||||
| Granted | |||||||||||||||||
| Vested | ( | ||||||||||||||||
| Forfeited | ( | ||||||||||||||||
| Balances at September 30, 2022 | |||||||||||||||||
Precigen currently uses authorized and unissued shares to satisfy share award exercises.
The Company's Executive Chairman ("Executive Chairman"), who previously served as an employee and executive officer until September 24, 2020, received a base salary of $200 per month through March 31, 2020, payable in fully-vested shares of Precigen common stock with such shares subject to a three-year lock-up on resale. In September 2020, the Company's board of directors, upon the recommendation of the compensation committee of the board, approved a new compensation arrangement for the Executive Chairman consisting of (i) an annual retainer of $100 payable in cash or, at the Executive Chairman's election, shares of Precigen common stock; (ii) an annual grant of fully vested stock options having a grant date fair value of $250 ; and (iii) an annual grant of RSUs having a grant date fair value of $250 vesting over one year . The new compensation arrangement began in calendar year 2021 and was prorated for the nine months of 2020 not covered by the Executive Chairman's previous compensation arrangement discussed above. Expense associated with the arrangements above is included in selling, general, and administrative expenses in the Company's condensed consolidated statements of operations and totaled $63 and $76 for the three months ended September 30, 2022 and 2021, respectively, and $558 and $585 for the nine months ended September 30, 2022 and 2021, respectively.
15. Operating Leases
29
The components of lease costs were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating lease costs | $ | $ | $ | $ | |||||||||||||||||||
| Short-term lease costs | |||||||||||||||||||||||
| Variable lease costs | |||||||||||||||||||||||
| Lease costs | $ | $ | $ | $ | |||||||||||||||||||
As of September 30, 2022, maturities of lease liabilities, excluding short-term and variable leases, for continuing operations were as follows:
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | |||||
| Present value adjustment | ( | ||||
| Total | $ | ||||
| Current portion of operating lease liabilities | $ | ||||
| Long-term portion of operating lease liabilities | |||||
| Total | $ | ||||
Other information related to operating leases in continuing operations was as follows:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Weighted average remaining lease term (years) | |||||||||||
| Weighted average discount rate | % | % | |||||||||
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid for operating lease liabilities | $ | $ | |||||||||
| Operating lease right-of-use assets obtained in exchange for new lease liabilities (includes new leases or modifications of existing leases) | |||||||||||
16. Commitments and Contingencies
Contingencies
In September 2020, the Company reached a final settlement with the Securities and Exchange Commission ("SEC") with respect to an investigation concerning the Company's disclosures regarding its MBP program in the first three quarters of 2017. In October 2020, several shareholder class action lawsuits were filed in the United States District Court for the Northern District of California on behalf of certain purchasers of the Company's common stock. The complaints name as defendants the Company and certain of its current and former officers. The plaintiffs' claims challenged disclosures about the MBP program from May 10, 2017 to March 1, 2019. In March 2021, the court granted an order consolidating the claims and, in April 2021, appointed a lead plaintiff and lead counsel in the case, captioned In re Precigen Securities Litigation, Case No. 5:20-cv-06936-
30
BLF (N.D. Cal.). In May 2021, the lead plaintiff filed an amended complaint. The defendants moved to dismiss that complaint. In September 2021, the court issued an order mooting the defendants' motion to dismiss in light of the lead plaintiff's stated intent to file a second amended complaint in response to the motion to dismiss. On September 27, 2021, the lead plaintiff filed a second amended complaint, which the defendants moved to dismiss. On May 31, 2022, the court granted the motion, dismissing the second amended complaint with leave to amend. On August 1, 2022, the lead plaintiff filed a third amended complaint. On August 2, 2022, the Court granted the parties’ stipulated request to vacate all case deadlines to permit the parties to conduct a private mediation session to explore potential resolution of the action. In the event that litigation resumes, the defendants intend to move to dismiss the third amended complaint.
In December 2020, a derivative shareholder action, captioned Edward D. Wright, derivatively on behalf of Precigen, Inc. F/K/A Intrexon Corp. v. Alvarez et al, was filed in the Circuit Court for Fairfax County in Virginia on behalf of Precigen, Inc. asserting similar claims under state law against Precigen's current directors and certain officers. The plaintiff seeks damages, forfeiture of benefits received by defendants, and an award of reasonable attorneys' fees and costs. The case was stayed by an order entered on June 14, 2021. On September 24, 2021, an individual shareholder filed a lawsuit in the Circuit Court for Henrico County styled Kent v. Precigen, Inc., Case CL21-6349.
The Kent action demands inspection of certain books and records of the Company pursuant to Virginia statutory and common law. On April 1, 2022, the court denied the demurrer and referred the matter to a hearing on the merits. The Company is evaluating how best to proceed. The Company intends to defend the lawsuits vigorously; however, there can be no assurances regarding the ultimate outcome of these lawsuits.
The Company has previously entered into strategic collaborations, including ECCs and JVs, to fund and develop products enabled by its technologies. These relationships involve complex interests, and the Company's interests may diverge with those of its collaborators, which can occur as a result of operations under those collaborations, business or technological developments, or as the Company transitions away from, or terminates, certain strategic collaborations. The Company has had, and has, disagreements and disputes with certain collaborators and JV partners, including the IEP Investors and the IEPII Investors. While the Company believes it is entitled to payment for work performed per its collaborations and JVs, consistent with its policy for accounting for accounts receivable, in 2019, the Company has fully reserved the amount of any disputed accounts receivable that remained outstanding.
On December 29, 2021, the Company received a letter from a group of investors in each of Intrexon Energy Partners and Intrexon Energy Partners II, referring certain issues to arbitration pursuant to the arbitration provisions of the Amended and Restated Limited Liability Company Agreements of Intrexon Energy Partners and Intrexon Energy Partners II (the “Arbitration Matters”). In July 2022, the arbitration panel ruled on the Arbitration Matters, and adopted the Company’s proposed terms with respect to each of the Arbitration Matters and, pursuant to that ruling, the Company acquired the membership interests of the investors for an aggregate amount of approximately $7,000 in cash. See Notes 4 and 5 for additional discussion of the accounting for the acquisition of the membership interests.
In the course of its business, the Company is involved in litigation or legal matters, including governmental investigations. Such matters may result in adverse judgments, unfavorable settlements, or concessions by the Company, or adverse regulatory action, any of which could harm the Company’s business or operations. Moreover, 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 September 30, 2022, 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.
17. Related Party Transactions
Third Security and Affiliates
The Company's Executive Chairman is also the Senior Managing Director and Chairman of Third Security and owns 100 % of the equity interests of Third Security. The Company had an agreement with Third Security under which the Company reimbursed Third Security for certain tax-related services performed by Third Security as requested by the Company. The Company also reimburses Third Security for certain out-of-pocket expenses incurred on the Company's behalf. The agreement with Third Security expired on December 31, 2021. As the Company evaluates its alternatives, it continues to utilize these services on a limited basis under the terms of the original agreement. The total expenses incurred by the Company under these arrangements were $43 for the three months ended September 30, 2021, and $25 and $89 for the nine months ended September 30, 2022 and 2021, respectively.
See also Note 14 regarding compensation arrangements between the Company and its Executive Chairman.
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Through November 2021, the Company also subleased certain administrative offices to Third Security. The significant terms of the lease mirrored the terms of the Company's lease with the landlord, and the Company recorded sublease income of $21 for the three months ended September 30, 2021, and $61 for the nine months ended September 30, 2021.
See Note 13 regarding additional transactions with affiliates of Third Security.
18. Segments
The Company's CODM assesses the operating performance of and allocates resources for several operating segments using Segment Adjusted EBITDA as a basis. Management believes this financial metric is a key indicator of operating results since it excludes noncash revenues and expenses that are not reflective of the underlying business performance of an individual enterprise. The Company defines Segment Adjusted EBITDA as net income (loss) before (i) interest expense, (ii) income tax expense or benefit, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) loss on settlement agreements where noncash consideration is paid, (vi) adjustments for accrued bonuses paid in equity awards, (vii) gain or loss on disposals of assets, (viii) loss on impairment of goodwill and other noncurrent assets, (ix) equity in net gain (loss) of affiliates, and (x) recognition of previously deferred revenue associated with upfront and milestone payments as well as cash outflows from capital expenditures and investments in affiliates, but includes proceeds from the sale of assets in the period sold.
Because the Company uses Segment Adjusted EBITDA as its primary measure of segment performance, it has included this measure in its discussion of segment operating results. The Company has also disclosed revenues from external customers and intersegment revenues for each reportable segment. Corporate expenses are not allocated to the segments and are managed at a consolidated level. The CODM does not use total assets by segment to evaluate segment performance or allocate resources, and accordingly, these amounts are not required to be disclosed. The Company's segment presentation excludes amounts related to the operations of Trans Ova and MBP Titan which are reported as discontinued operations (Note 3).
For the three and nine months ended September 30, 2022, the Company's reportable segments were (i) Biopharmaceuticals and (ii) Exemplar. These identified reportable segments met the quantitative thresholds to be reported separately for the nine months ended September 30, 2022. See Note 2 for a description of the Biopharmaceuticals segment. See Note 1 for a description of the Exemplar segment.
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Segment Adjusted EBITDA by reportable segment was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Biopharmaceuticals | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Exemplar | |||||||||||||||||||||||
| Segment Adjusted EBITDA for reportable segments | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The table below reconciles Segment Adjusted EBITDA for reportable segments to consolidated net loss from continuing operations before income taxes:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Segment Adjusted EBITDA for reportable segments | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Remove cash paid for capital expenditures, net of proceeds from sale of assets, and cash paid for investments in affiliates | |||||||||||||||||||||||
| Add recognition of previously deferred revenue associated with upfront and milestone payments | |||||||||||||||||||||||
| Other expenses: | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Depreciation and amortization | ( | ( | ( | ( | |||||||||||||||||||
| Gain on disposals of assets | ( | ( | |||||||||||||||||||||
| Impairment losses | ( | ( | |||||||||||||||||||||
| Stock-based compensation expense | ( | ( | ( | ( | |||||||||||||||||||
| Adjustment related to accrued bonuses paid in equity awards | |||||||||||||||||||||||
| Equity in net gain (loss) of affiliates | ( | ||||||||||||||||||||||
| Other | ( | ( | ( | ||||||||||||||||||||
| Unallocated corporate costs | ( | ( | ( | ( | |||||||||||||||||||
| Eliminations | ( | ( | ( | ( | |||||||||||||||||||
| Consolidated net loss from continuing operations before income taxes | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Revenues by reportable segment were as follows:
| Three Months Ended September 30, 2022 | |||||||||||||||||
Biopharmaceuticals | Exemplar | Total | |||||||||||||||
| Revenues from external customers | $ | $ | $ | ||||||||||||||
| Intersegment revenues | |||||||||||||||||
| Total segment revenues | $ | $ | $ | ||||||||||||||
| Three Months Ended September 30, 2021 | |||||||||||||||||
Biopharmaceuticals | Exemplar | Total | |||||||||||||||
| Revenues from external customers | $ | $ | $ | ||||||||||||||
| Intersegment revenues | |||||||||||||||||
| Total segment revenues | $ | $ | $ | ||||||||||||||
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| Nine Months Ended September 30, 2022 | |||||||||||||||||
Biopharmaceuticals | Exemplar | Total | |||||||||||||||
| Revenues from external customers | $ | $ | $ | ||||||||||||||
| Intersegment revenues | |||||||||||||||||
| Total segment revenues | $ | $ | $ | ||||||||||||||
| Nine Months Ended September 30, 2021 | |||||||||||||||||
Biopharmaceuticals | Exemplar | Total | |||||||||||||||
| Revenues from external customers | $ | $ | $ | ||||||||||||||
| Intersegment revenues | |||||||||||||||||
| Total segment revenues | $ | $ | $ | ||||||||||||||
The table below reconciles total segment revenues from reportable segments to total consolidated revenues:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Total segment revenues from reportable segments | $ | $ | $ | $ | |||||||||||||||||||
| Elimination of intersegment revenues | ( | ( | ( | ||||||||||||||||||||
| Total consolidated revenues | $ | $ | $ | $ | |||||||||||||||||||
For the three months ended September 30, 2022 and 2021, 41.1 % and 75.6 %, respectively, of total consolidated revenue was attributable to one and two customers, respectively, in the Exemplar segment. For the nine months ended September 30, 2022 and 2021, 62.4 % and 60.7 %, respectively, of total consolidated revenue was attributable to one customer in the Exemplar segment.
As of September 30, 2022 and December 31, 2021, the Company had $3,122 and $4,463 , respectively, of long-lived assets in foreign countries. The Company recognized revenues derived in foreign countries totaling $63 and $93 for the three months ended September 30, 2022 and 2021, respectively, and $217 and $296 for the nine months ended September 30, 2022 and 2021, respectively.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q, or Quarterly Report, and our Annual Report on Form 10-K for the year ended December 31, 2021, or Annual Report.
The following discussion contains forward-looking statements that reflect our plans, estimates, expectations, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements and you are cautioned not to place undue reliance on forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report, particularly in "Special Note Regarding Forward-Looking Statements" and "Risk Factors." The forward-looking statements included in this Quarterly Report are made only as of the date hereof.
Overview
We are a dedicated discovery and clinical-stage biopharmaceutical company advancing the next generation of gene and cell therapies with the overall goal of improving outcomes for patients with significant unmet medical needs. We are leveraging our proprietary technology platforms to develop product candidates designed to target urgent and intractable diseases in our core therapeutic areas of immuno-oncology, autoimmune disorders, and infectious diseases. We have developed an extensive pipeline of therapies across multiple indications within these core focus areas.
We believe that our array of technology platforms uniquely positions us among other biotechnology companies to advance precision medicine. Precision medicine is the practice of therapeutic product development that takes into account specific genetic variations within populations impacted by a disease to design targeted therapies to improve outcomes for a disease or patient population. Our proprietary and complementary technology platforms provide a strong foundation to realize the core promise of precision medicine by supporting our efforts to construct powerful gene programs to drive efficacy, deliver these programs through viral, non-viral, and microbe-based approaches to drive lower costs, and control gene expression to drive safety. Our therapeutic platforms, including UltraCAR-T, AdenoVerse immunotherapy, and ActoBiotics, are designed to allow us to precisely control the level and physiological location of gene expression and modify biological molecules to control the function and output of living cells to treat underlying disease conditions.
We are actively advancing our lead clinical programs, including: PRGN-3005 and PRGN-3006, which are built on our UltraCAR-T platform; and PRGN-2009 and PRGN-2012, which are based on our AdenoVerse immunotherapy platform. In addition, we have completed a Phase 1b/2a study of AG019, which is built on our ActoBiotics platform. We also have a robust pipeline of preclinical programs that we are pursuing in order to drive long-term value creation.
We have developed a proprietary electroporation device, UltraPorator, designed to further streamline and ensure the rapid and cost-effective manufacturing of UltraCAR-T therapies. UltraPorator has received U.S. Food and Drug Administration, or FDA, clearance for manufacturing UltraCAR-T cells in clinical trials, and since November 2020, we have been dosing patients with UltraCAR-T cells manufactured with UltraPorator in our PRGN-3005 and PRGN-3006 clinical trials.
We exercise discipline in our portfolio management by systematically evaluating data from our preclinical programs in order to make rapid "go" and "no go" decisions. Through this process, we believe we can more effectively allocate resources to programs that we believe show the most promise and advance such programs to clinical trials.
Our Healthcare Business
Our healthcare business focuses on human therapeutics and developing research models and services for healthcare research applications. Our Biopharmaceuticals segment includes our wholly owned subsidiaries PGEN Therapeutics, Inc., or PGEN Therapeutics, and Precigen ActoBio, Inc., or ActoBio, and our majority ownership interest in Triple-Gene LLC, doing business as Precigen Triple-Gene, or Triple-Gene, as well as royalty interests in therapeutics and therapeutic platforms from companies not controlled by us. Exemplar Genetics LLC, doing business as Precigen Exemplar, or Exemplar, is a wholly owned subsidiary which is focused on developing research models and services for healthcare research applications.
Biopharmaceuticals
PGEN Therapeutics
PGEN Therapeutics is a dedicated discovery and clinical stage biopharmaceutical company advancing the next generation of gene and cell therapies using precision technology to target urgent and intractable diseases in immuno-oncology, autoimmune
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disorders and infectious diseases. PGEN Therapeutics operates as an innovation engine, progressing a preclinical and clinical pipeline of well-differentiated therapies toward clinical proof-of-concept and commercialization.
PGEN Therapeutics is developing therapies primarily built on our UltraCAR-T therapeutics platform and our "off-the-shelf" AdenoVerse immunotherapy platform. Through our UltraCAR-T therapeutics platform, we are able to precision-engineer UltraCAR-T cells to produce a homogeneous cell product that simultaneously expresses antigen-specific chimeric antigen receptor, or CAR, kill switch, and our proprietary membrane-bound interleukin-15, or mbIL15, genes in any genetically modified UltraCAR-T cell. Our decentralized and rapid proprietary manufacturing process allows us to manufacture UltraCAR-T cells overnight at a medical center's current good manufacturing practices facility, or cGMP, and reinfuse the patient the following day after gene transfer. This process improves upon current approaches to CAR-T manufacturing, which require extensive ex vivo expansion following viral vector transduction to achieve clinically relevant cell numbers that we believe can result in the exhaustion of CAR-T cells prior to their administration, limiting their potential for persistence in patients. We have developed a proprietary electroporation device, UltraPorator, designed to further streamline and ensure the rapid and cost-effective manufacturing of UltraCAR-T therapies. The UltraPorator system includes proprietary hardware and software solutions and potentially represents major advancements over current electroporation devices by significantly reducing the processing time and contamination risk. UltraPorator is intended to be a viable scale-up and commercialization solution for decentralized UltraCAR-T manufacturing. Our AdenoVerse immunotherapy platform utilizes a library of proprietary adenovectors for the efficient gene delivery of therapeutic effectors, immunomodulators, and vaccine antigens. We have established proprietary manufacturing cell lines and production methodologies from our AdenoVerse immunotherapy platform, which we believe are easily scalable for commercial supply. We believe that our proprietary gorilla adenovectors, part of the AdenoVerse technology, have superior performance characteristics as compared to current competition, including standard human adenovirus serotype 5, rare human adenovirus types and other non-human primate adenovirus types.
The most advanced programs within PGEN Therapeutics are as follows:
PRGN-2012 is a first-in-class, investigational "off-the-shelf" AdenoVerse immunotherapy for the treatment of recurrent respiratory papillomatosis, or RRP. PRGN-2012 is an innovative therapeutic vaccine with optimized antigen design that uses our gorilla adenovector technology, part of our proprietary AdenoVerse platform, to elicit immune responses directed against cells infected with HPV type 6 and HPV type 11. PRGN-2012 is in a Phase 1/2 clinical trial for adult patients with RRP. PRGN-2012 is being developed in collaboration with the Center for Cancer Research at the NCI pursuant to a CRADA. Enrollment in the Phase 1 portion of the clinical trial has been completed and enrollment in the Phase 2 portion of the clinical trial is ongoing. PRGN-2012 has been granted Orphan Drug designation for treatment of RRP by the FDA.
PRGN-2009 is a first-in-class, "off-the-shelf" investigational immunotherapy designed to activate the immune system to recognize and target human papillomavirus-positive, or HPV+, solid tumors. PRGN-2009 leverages our UltraVector and AdenoVerse platforms to optimize HPV type 16 and HPV type 18, antigen design for delivery via a proprietary gorilla adenovector with a large genetic payload capacity and the ability for repeat administrations. PRGN-2009 is in a Phase 1/2 clinical trial as a monotherapy or in combination with bintrafusp alfa, or M7824, an investigational bifunctional fusion protein, for patients with HPV-associated cancers in collaboration with the National Cancer Institute, or NCI, pursuant to a cooperative research and development arrangement, or CRADA.
PRGN-3006 is a first-in-class, investigational autologous CAR-T therapy that utilizes our UltraCAR-T platform to express a CAR to target CD33 (Siglec-3), mbIL15 and a kill switch gene. PRGN-3006 is currently being evaluated in a Phase 1/1b clinical trial for the treatment of relapsed or refractory, or r/r, acute myeloid leukemia, or AML, or high-risk myelodysplastic syndromes, or MDS. In January 2022, we announced the completion of enrollment in the dose escalation phase in both the non-lymphodepletion and the lymphodepletion cohorts of this Phase 1 trial. The Phase 1b expansion arm is ongoing. In April 2022, we announced that PRGN-3006 was granted Fast Track designation in patients with r/r AML by the FDA. Previously PRGN-3006 was granted Orphan Drug Designation in patients with AML by the FDA.
PRGN-3005 is a first-in-class, investigational autologous CAR-T therapy that utilizes our UltraCAR-T platform to simultaneously express a CAR targeting the unshed portion of the Mucin 16, mbIL15, and kill switch genes. PRGN-3005 is currently being evaluated in a Phase 1/1b clinical trial for the treatment of advanced, recurrent platinum-resistant ovarian , fallopian tube, or primary peritoneal cancer. In January 2022, we announced the completion of enrollment in the dose escalation Phase of both IP and IV arms without lymphodepletion in the ongoing Phase 1 clinical trial. The Phase 1b expansion cohort of the clinical trial with lymphodepletion prior to IV administration of PRGN-3005 is ongoing.
PRGN-3007 is a first-in-class, investigational autologous CAR-T therapy that utilizes the next generation UltraCAR-T platform to express a CAR to target ROR1, mbIL15, kill switch, and a novel mechanism for the intrinsic blockade of the programmed death 1, or PD-1, gene expression. PRGN-3007 has received FDA clearance to initiate a Phase 1/1b clinical trial for patients with advanced receptor tyrosine kinase-like orphan receptor 1-positive, or ROR1+, hematological (Arm 1) and solid tumors (Arm 2). The target patient population for Arm 1 includes relapsed or refractory CLL, relapsed or refractory MCL, relapsed or refractory B-ALL, and relapsed or refractory DLBCL. The target patient population for Arm 2 includes locally advanced
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unresectable or metastatic histologically confirmed TNBC. The study will enroll in two parts: an initial 3+3 dose escalation in each arm followed by a dose expansion at the maximum tolerated dose. Arm 1 and Arm 2 will enroll in parallel.
In addition to our clinical programs, PGEN Therapeutics has a robust pipeline of preclinical programs in our core therapeutic areas of immune-oncology, infectious diseases, and autoimmune disorders that we are pursuing in order to drive long-term value creation. Our pipeline includes a number of product candidates, including UltraCAR-T therapeutics for various cancers, and "off-the-shelf" AdenoVerse therapeutic platforms. We expect to continue development of various preclinical programs to identify product candidates for evaluation in clinical trials.
Precigen ActoBio, Inc.
ActoBio is pioneering a proprietary class of microbe-based biopharmaceuticals that enable expression and local delivery of disease-modifying therapeutics. We refer to these microbe-based biopharmaceuticals as ActoBiotics. Our ActoBiotics platform is a unique delivery platform precisely tailored for specific disease modification with the potential for superior efficacy and safety. ActoBiotics combine the advantages of highly selective protein-based therapeutic agents with local delivery by the well-characterized and food-grade bacterium Lactococcus lactis, or L. lactis. ActoBiotics can be delivered orally in a capsule, through an oral rinse, or in a topical solution. We believe ActoBiotics have the potential to provide superior safety and efficacy via the sustained release of appropriate quantities of select therapeutic agents as compared to injectable biologics, while reducing the side effects commonly attributed to systemic delivery and corresponding peaks in concentration. ActoBiotics work via genetically modified bacteria that deliver proteins and peptides at mucosal sites, rather than the insertion of one or more genes into a human cell by means of a virus or other delivery mechanism. By foregoing this insertion, ActoBiotics allow "gene therapy" without the need for cell transformation.
ActoBio's most advanced internal pipeline candidate, AG019, is a first-in-class disease modifying antigen-specific, investigational immunotherapy for the prevention, delay, or reversal of type 1 diabetes mellitus, or T1D. AG019 is an easy-to-take capsule formulation of ActoBiotics engineered to deliver the autoantigen human proinsulin, or hPINS, and the tolerance-enhancing cytokine human interleukin-10 to the mucosal lining of gastro-intestinal tissues in patients with T1D. We have completed a Phase 1b/2a clinical trial of AG019 for the treatment of early-onset T1D. The Phase 1b portion of the study evaluated the safety and tolerability of AG019 monotherapy administered as a single dose and repeated daily doses in adult and adolescent patients. The Phase 2a double-blind portion of the study investigated the safety and tolerability of AG019 in combination with teplizumab, or PRV-031. The primary endpoint of assessing safety and tolerability in both the Phase 1b AG019 monotherapy and the Phase 2a AG019 combination therapy has been met. AG019 was well-tolerated when administered to adults and adolescents either as monotherapy or in combination with teplizumab. A single 8-week treatment cycle of oral AG019 as a monotherapy and in combination with teplizumab showed stabilization or increase of C-peptide levels during the first 6 months post treatment initiation in recent-onset T1D.
Precigen Triple-Gene
Triple-Gene is a clinical stage gene therapy company focused on developing advanced treatments for complex cardiovascular diseases. Triple-Gene's most advanced candidate, INXN-4001, is a non-viral triple-effector plasmid based on our UltraVector platform designed for constitutive expression of human S100A1, SDF-1a, and VEGF-165 to address multiple pathways of heart failure. Utilizing a single plasmid comprising all three genes, instead of each individual gene on separately delivered plasmids, INXN-4001 can control for delivery and ensure expression of the three genes in all transfected cells.
We have completed a first-in-human, open label Phase 1 study designed to evaluate the safety of retrograde coronary sinus infusion, or RCSI, of INXN-4001 in outpatient left ventricular assist device, or LVAD, recipients. The Phase 1 trial met the primary endpoints to evaluate safety and feasibility for INXN-4001.
Partnered Program
We have partnered with Castle Creek Biosciences, Inc., or Castle Creek, to advance product candidates D-Fi (debcoemagene autoficel), formerly designated FCX-007, for the treatment of recessive dystrophic epidermolysis bullosa, or RDEB, and FCX-013 for the treatment of localized scleroderma. Pursuant to a previous collaboration, we licensed our technology platforms to Castle Creek for use in certain specified fields, and in exchange, we received and were entitled to certain access fees, milestone payments, royalties, and sublicensing fees related to the development and commercialization of product candidates. In March 2020, we and Castle Creek terminated the original collaboration agreement by mutual agreement, with the parties agreeing that FCX-007 and FCX-013 would be treated as "Retained Products" under the terms of the original agreement. Castle Creek retains a license to continue to develop and commercialize the Retained Products within the field of use for so long as Castle Creek continues to pursue such development and commercialization, and we are also entitled to certain royalties with respect to the Retained Products.
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Precigen Exemplar
Exemplar is committed to enabling the study of life-threatening human diseases through the development of MiniSwine Yucatan miniature pig research models and services, as well as enabling the production of cells and organs in its genetically engineered swine for regenerative medicine applications. Historically, researchers have lacked animal models that faithfully represent human diseases. As a result, a sizeable barrier has blocked progress in the discovery of human disease mechanisms; novel diagnostics, procedures, devices, prevention strategies and therapeutics; and the ability to predict in humans the efficacy of those next-generation procedures, devices, and therapeutics. Exemplar's MiniSwine models are genetically engineered to exhibit a wide variety of human disease states, which provides a more accurate platform to test the efficacy of new medications and devices.
COVID-19 Impact
COVID-19 has had and continues to have an extensive impact on the global health and economic environments. Furthermore, there is uncertainty regarding the duration and severity of the ongoing pandemic, and we could experience delays of other pandemic-related events that may adversely impact our clinical as well as preclinical pipeline candidates in the future.
We are also closely monitoring the impact of COVID-19 on all aspects of our businesses. Given the dynamic nature of these circumstances, the full impact of the COVID-19 pandemic on our ongoing business, results of operations, and overall financial performance cannot be reasonably estimated at this time.
The health and safety of our employees is of the utmost importance. We have implemented safety measures in our facilities for the well-being of our employees and visitors. These measures have permitted us to continue to advance our programs, with the ultimate goal of benefiting patients.
For more information regarding the risks associated with COVID-19 and its impact on our business, see "Risk Factors" in Part II - Item 1A.
Discontinued Operations
Historically, we developed technology platforms for application across a variety of diverse end markets, including health, food, energy, and the environment. In January 2020, we announced that we were increasing our focus on our healthcare opportunities, which reflected our most advanced platforms, and in connection therewith, we divested a number of our non-healthcare assets and changed our name to Precigen, Inc.
In 2020, as a result of market uncertainty driven by the COVID-19 pandemic and the state of the energy sector raising significant challenges for the strategic alternatives pursued by MBP Titan, LLC, or MBP Titan, our methane bioconversion business, we suspended MBP Titan's operations, preserved certain of MBP Titan's intellectual property, terminated all of its personnel, and undertook steps to dispose of its other assets and obligations. The wind down of MBP Titan's activities was substantially complete by December 31, 2020, with the final disposition of certain property and equipment and the facility operating lease occurring in January 2021. After the wind down of MBP Titan, certain assets and contractual obligations which were originally related to MBP Titan continue to be managed at the Precigen corporate level.
These remaining assets and contractual obligations include our equity interest in and collaboration agreements with Intrexon Energy Partners, LLC ("Intrexon Energy Partners"), and Intrexon Energy Partners II, LLC ("Intrexon Energy Partners II"), including the associated deferred revenue remaining under each collaboration agreement which was recognized as revenue in the third quarter of 2022 upon acquiring control of these entities as well as the associated intellectual property developed by MBP Titan to date. These assets, liabilities, and related historical revenue and equity losses are included in our operating results from continuing operations in the condensed consolidated financial statements appearing in Item 1 of this form 10-Q for all periods presented as a result of our continuing involvement.
As disclosed in "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Notes 3 and 5 " appearing elsewhere in the Quarterly Report", effective as of August 18, 2022, Precigen completed the previously announced sale of 100% of the issued and outstanding membership interests of its wholly-owned subsidiary, Trans Ova.
See also "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report for additional discussion of our discontinued operations.
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See also "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Notes 2, 4, 5 and 16" appearing elsewhere in this Quarterly Report for a discussion of Intrexon Energy Partners and Intrexon Energy Partners II.
Segments
As of September 30, 2022, our reportable segments were (i) Biopharmaceuticals and (ii) Exemplar. These identified reportable segments met the quantitative thresholds to be reported separately for the nine months ended September 30, 2022. The Company's segment presentation excludes amounts related to the operations of Trans Ova and MBP Titan which are reported as discontinued operations.
Corporate expenses, which are not allocated to the segments and are managed at a consolidated level, include costs associated with general and administrative functions, including our finance, accounting, legal, human resources, information technology, corporate communication, and investor relations functions. Corporate expenses exclude interest expense, depreciation and amortization, gain or loss on disposals of assets, stock-based compensation expense, loss on settlement agreement, and equity in net loss of affiliates. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 18" appearing elsewhere in this Quarterly Report for a discussion of our reportable segments and Segment Adjusted EBITDA.
Financial overview
We have incurred significant losses since our inception. We anticipate that we may continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability. Our historical collaboration and licensing revenues were generated under a business model from which we have gradually transitioned, and we do not expect to expend significant resources servicing our historical collaborations in the future. We may enter into strategic transactions for individual platforms or programs in the future from which we may generate new collaboration and licensing revenues. We continue to generate product and service revenues through our Exemplar subsidiary, and in the nine months ended September 30, 2022, generated positive Segment Adjusted EBITDA. Products currently in our clinical pipeline will require regulatory approval and/or commercial scale-up before they may commence significant product sales and operating profits.
As we continue our efforts to focus our business and generate additional capital, we may be willing to enter into transactions involving one or more of our operating segments and reporting units for which we have goodwill and intangible assets. These efforts could result in us identifying impairment indicators or recording impairment charges in future periods. In addition, market changes and changes in judgements, assumptions, and estimates that we have made in assessing the fair value of goodwill could cause us to consider some portion or all of certain assets to become impaired.
See further discussion regarding our ability to continue as a going concern below under the Liquidity and capital resources section of Item 2.
Sources of revenue
Historically, we have derived our collaboration and licensing revenues through agreements with counterparties for the development and commercialization of products enabled by our technologies. Generally, the terms of these collaborations provide that we receive some or all of the following: (i) technology access fees upon signing; (ii) reimbursements of costs incurred by us for our research and development and/or manufacturing efforts related to specific applications provided for in the collaboration; (iii) milestone payments upon the achievement of specified development, regulatory and commercial activities; and (iv) royalties on sales of products arising from the collaboration.
Our technology access fees and milestone payments may be in the form of cash or securities of the collaborator. Our collaborations contain multiple arrangements, and we typically defer revenues from the technology access fees and milestone payments received and recognize such revenues in the future over the anticipated performance period. We are also entitled to sublicensing revenues in those situations where our collaborators choose to license our technologies to other parties.
As we continue to shift our focus on our healthcare business, we have and may continue to mutually terminate collaboration agreements or repurchase rights to the exclusive fields from collaborators, relieving us of any further performance obligations under the agreement. Upon such circumstances or when we determine no further performance obligations are required of us under an agreement, we may recognize any remaining deferred revenue as either collaboration revenue or as a reduction of operating expense, depending on the circumstances. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 5" appearing elsewhere in the Quarterly Report for a discussion of changes to our significant collaborations.
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We generate product and service revenues primarily through sales of products or services that are created from technologies developed or owned by us. Exemplar generates product and service revenues through the development and sale of genetically engineered miniature swine models. We recognize revenue when control of the promised product is transferred to the customer or when the promised service is completed.
In future periods, in connection with our focus on healthcare, our revenues will primarily depend on our ability to advance and create our own programs and the extent to which we bring products enabled by our technologies to market. Other than for collaboration revenues recognized upon cancellation or modification of an existing collaboration or for revenues generated pursuant to future strategic transactions for any of our existing platforms or programs, we expect our collaboration revenues will continue to decrease in the near term. Our revenues will also depend upon our ability to maintain or improve the volume and pricing of Exemplar's current product and service offerings. As we focus on our healthcare business, we anticipate that our expenses will increase substantially if, and as, we continue to advance the preclinical and clinical development of our existing product candidates and our research programs. We expect a significant period of time could pass before commercialization of our various product candidates or before the achievement of contractual milestones and the realization of royalties on product candidates commercialized under our collaborations and revenues sufficient to achieve profitability. Accordingly, there can be no assurance as to the timing, magnitude, and predictability of revenues to which we might be entitled.
Cost of products and services
Cost of products and services includes primarily labor and related costs, drugs and supplies, feed used in production, and facility charges, including rent and depreciation. Fluctuations in the price of feed have not had a significant impact on our operating margins and no derivative financial instruments are used to mitigate the price risk.
Research and development expenses
We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:
•salaries and benefits, including stock-based compensation expense, for personnel in research and development functions;
•fees paid to consultants and contract research organizations who perform research on our behalf and under our direction;
•costs related to laboratory supplies used in our research and development efforts and acquiring, developing, and manufacturing preclinical study and clinical trial materials;
•costs related to certain in-licensed technology rights or reacquired in-process research and development;
•amortization of patents and related technologies acquired in mergers and acquisitions; and
•facility-related expenses, which include direct depreciation costs and unallocated expenses for rent and maintenance of facilities and other operating costs.
Our research and development expenses are generally incurred by our reportable segments and primarily relate to either costs incurred to expand or otherwise improve our technologies or the costs incurred to develop our own products and services. Our Biopharmaceuticals segment is progressing preclinical and clinical programs that target urgent and intractable diseases in our core therapeutic areas of immuno-oncology, autoimmune disorders, and infectious diseases, including PRGN-3005, PRGN-3006, PRGN-3007, PRGN-2009, PRGN-2012, and AG019. Exemplar's research and development activities relate to new and improved pig research models. The following table summarizes our research and development expenses incurred by reportable segment and reconciles those expenses to research and development expenses on the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021.
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Biopharmaceuticals | $ | 12,536 | $ | 12,355 | $ | 36,133 | $ | 35,539 | |||||||||||||||
| Exemplar | 86 | 79 | 244 | 216 | |||||||||||||||||||
| Total consolidated research and development expenses | $ | 12,622 | $ | 12,434 | $ | 36,377 | $ | 35,755 | |||||||||||||||
The amount of research and development expenses may be impacted by, among other things, the number and nature of our own proprietary programs, and the number and size of programs we may support on behalf of collaboration agreements. We expect that our research and development expenses will increase as we continue to develop our own proprietary programs, including progression of these programs into preclinical and clinical stages. We believe these increases will likely include increased costs paid to consultants and contract research organizations and increased costs related to laboratory supplies.
Research and development expenses may also increase as a result of in-licensing of technologies or ongoing research and development operations that we might assume through mergers and acquisitions.
Selling, general and administrative expenses
Selling, general and administrative, or SG&A, expenses consist primarily of salaries and related costs, including stock-based compensation expense, for employees in executive, operational, finance, information technology, legal, and corporate communications functions. Other significant SG&A expenses include rent and utilities, insurance, accounting, and legal services (including the cost of settling certain claims and lawsuits), and expenses associated with obtaining and maintaining our intellectual property.
SG&A expenses may fluctuate in the future depending on the scaling of our corporate functions required to support our corporate initiatives and the outcomes of legal claims and assessments against us.
Other income (expense), net
Interest income consists of interest earned on our cash and cash equivalents and short-term and long-term investments and may fluctuate based on amounts invested and current interest rates.
Interest expense decreased in the current period, and is expected to decrease in future periods upon the adoption of a new accounting standard effective January 1, 2022, which simplified the accounting for the Convertible Notes. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 2" appearing elsewhere in this Quarterly Report for further discussion.
In September 2022, the Company retired Convertible Notes with principal of $117,560. The net gain recorded on extinguishment of $0.9 million is included in Other income(expense), net. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 11" appearing elsewhere in this Quarterly Report for further discussion. The extinguishment of these Convertible Notes will alleviate us of $3.2 million in future cash interest payments had we held the Convertible Notes until maturity.
Equity in net income (loss) of affiliates
Equity in net income or loss of affiliates is our pro-rata share of our equity method investments' operating results, adjusted for accretion of basis difference. We account for investments in our JVs using the equity method of accounting since we have the ability to exercise significant influence, but not control, over the operating activities of these entities.
Segment performance
We use Segment Adjusted EBITDA as our primary measure of segment performance. We define Segment Adjusted EBITDA as net income (loss) before (i) interest expense, (ii) income tax expense or benefit, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) loss on settlement agreements where noncash consideration is paid, (vi) adjustments for accrued bonuses paid in equity awards, (vii) gain or loss on disposals of assets, (viii) loss on impairment of goodwill and other noncurrent assets, (ix) equity in net loss of affiliates, and (x) recognition of previously deferred revenue associated with upfront and milestone payments as well as cash outflows from capital expenditures and investments in affiliates, but includes proceeds
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from the sale of assets in the period sold. Corporate expenses are not allocated to the segments and are managed at a consolidated level. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 18" appearing elsewhere in this Quarterly Report for further discussion of Segment Adjusted EBITDA.
Results of operations
Comparison of the three months ended September 30, 2022 and the three months ended September 30, 2021
The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage:
| Three Months Ended September 30, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Collaboration and licensing revenues (1) | $ | 14,561 | $ | 22 | $ | 14,539 | >200% | ||||||||||||||||
| Product revenues | 342 | 554 | (212) | (38.3) | % | ||||||||||||||||||
| Service revenues | 1,750 | 2,632 | (882) | (33.5) | % | ||||||||||||||||||
| Other revenues | 69 | 125 | (56) | (44.8) | % | ||||||||||||||||||
| Total revenues | 16,722 | 3,333 | 13,389 | >200% | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Cost of products | 463 | 482 | (19) | (3.9) | % | ||||||||||||||||||
| Cost of services | 1,114 | 970 | 144 | 14.8 | % | ||||||||||||||||||
| Research and development | 12,622 | 12,434 | 188 | 1.5 | % | ||||||||||||||||||
| Selling, general and administrative | 10,137 | 10,977 | (840) | (7.7) | % | ||||||||||||||||||
| Impairment of other noncurrent assets | — | — | — | N/A | |||||||||||||||||||
| Total operating expenses | 24,336 | 24,863 | (527) | (2.1) | % | ||||||||||||||||||
| Operating loss | (7,614) | (21,530) | 13,916 | (64.6) | % | ||||||||||||||||||
| Total other expense, net | (942) | (4,850) | 3,908 | (80.6) | % | ||||||||||||||||||
| Equity in net loss of affiliates | 862 | — | 862 | N/A | |||||||||||||||||||
| Loss from continuing operations before income taxes | (7,694) | (26,380) | 18,686 | (70.8) | % | ||||||||||||||||||
| Income tax benefit | 50 | 61 | (11) | (18.0) | % | ||||||||||||||||||
| Loss from continuing operations | (7,644) | (26,319) | 18,675 | (71.0) | % | ||||||||||||||||||
| Income from discontinued operations, net of income taxes (2) | 95,023 | (3,445) | 98,468 | >200% | |||||||||||||||||||
| Net loss | $ | 87,379 | $ | (29,764) | $ | 117,143 | >200% | ||||||||||||||||
(1)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 5 " appearing elsewhere in this Quarterly Report.
(2)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report.
Collaboration and licensing revenues
Collaboration and licensing revenues increased $14.5 million or greater than 200%, from the three months ended September 30, 2021 due to the fact we obtained control of Intrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022 and therefore we recognized the remaining balance of deferred revenue associated with Intrexon Energy Partners and Intrexon Energy Partners II, less the amounts paid to acquire the membership interests of the investors. See "Notes to the Condensed Financial Statements (Unaudited) – Notes 2, 4, 5 and 16” appearing elsewhere in this Quarterly Report for further discussion of Intrexon Energy Partners and Intrexon Energy Partners II.
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Product revenues and gross margin
Product revenues decreased $0.2 million, or 38%, from the three months ended September 30, 2021. The decrease in product revenues was primarily due to product mix and lower customer demand. Gross margin on products declined in the current period as a result of the decreased revenues and an increase in salaries, benefits, and other personnel costs.
Service revenues and gross margin
Service revenues decreased $0.9 million, or 34%, from the three months ended September 30, 2021. The decrease in service revenues was primarily resulting from a lower demand from existing customers. Gross margin on services declined in the current period as a result of decreased revenues and an increase in salaries, benefits, other personnel costs.
Research and development expenses
Research and development expenses increased $0.2 million, or 2%, from the three months ended September 30, 2021. This increase was driven by an increase in salaries, benefits, and other personnel costs of $1.0 million primarily due to an
increase in the hiring of employees to support the growth in our operations and offset by $0.8 decrease in contract research organization costs and lab supplies due to timing differences, the completion of our 1b/2a clinical trial of AG019 in the fourth quarter of the prior year, as well as a continued prioritization of clinical product candidates with less expense incurred related to preclinical research programs for the comparable period.
Selling, general and administrative expenses
SG&A expenses decreased $0.8 million, or 8%, from the three months ended September 30, 2021. Salaries, benefits, and other personnel costs decreased $0.1 million primarily due to reduced stock compensation in 2022 and a reduction in salaries, benefits and other personnel costs due to reduced head count. Professional fees decreased $0.6 million, primarily due to decreased legal and consulting fees associated with certain matters.
Total other expense, net
Total other expense, net, is primarily related to our Convertible Notes issued July 2018. The current period decrease is primarily due to the adoption of a new accounting standard effective January 1, 2022 noted above, which simplified the accounting for the Convertible Notes and reduced non-cash interest expense. The decrease was also a result of the gain recorded on the early retirement of a portion of our Convertible Notes of $0.9 million. The extinguishment of these Convertible Notes will alleviate us of $3.2 million in future cash interest payments had we held the Convertible Notes until maturity.
Segment performance
The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the three months ended September 30, 2022 and 2021, for each of our reportable segments as well as unallocated corporate costs.
| Three Months Ended September 30, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Segment Adjusted EBITDA: | |||||||||||||||||||||||
Biopharmaceuticals | $ | (12,417) | $ | (12,661) | $ | 244 | 1.9 | % | |||||||||||||||
| Exemplar | 346 | 1,617 | (1,271) | (78.6) | % | ||||||||||||||||||
| Unallocated corporate costs | (5,744) | (7,166) | 1,422 | (19.8) | % | ||||||||||||||||||
For a reconciliation of Segment Adjusted EBITDA to net loss from continuing operations before income taxes, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 18" appearing elsewhere in this Quarterly Report.
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The following table summarizes revenues from external customers for the three months ended September 30, 2022 and 2021, for each of our reportable segments.
| Three Months Ended September 30, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
Biopharmaceuticals | $ | 14,624 | $ | 129 | $ | 14,495 | >200% | ||||||||||||||||
| Exemplar | 2,098 | 3,204 | (1,106) | (34.5) | % | ||||||||||||||||||
Biopharmaceuticals
Biopharmaceuticals collaboration and licensing revenues increased due to the fact we obtained control of Intrexon Energy Partners and Intrexon Energy Partners II and therefore we recognized the remaining balance of deferred revenue associated with Intrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022 less the amounts paid to acquire the membership interests of the investors. See "Notes to the Condensed Financial Statements (Unaudited) – Notes 2, 4, 5 and 16” appearing elsewhere in this Quarterly Report for further discussion of Intrexon Energy Partners and Intrexon Energy Partners II.
Exemplar
Revenues for Exemplar decreased due to a decrease in services performed resulting from a lower demand from existing customers. The decline in Segment Adjusted EBITDA was primarily due to the decreased revenues and increased personnel costs.
Unallocated Corporate Costs
Unallocated corporate costs decreased primarily due to decreased professional fees including legal fees associated with certain matters and reduced head count.
Comparison of the nine months ended September 30, 2022 and the nine months ended September 30, 2021
The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage:
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| Nine Months Ended September 30, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Collaboration and licensing revenues (1) | $ | 14,561 | $ | 389 | $ | 14,172 | >200% | ||||||||||||||||
| Product revenues | 1,455 | 1,860 | (405) | (21.8) | % | ||||||||||||||||||
| Service revenues | 8,896 | 7,935 | 961 | 12.1 | % | ||||||||||||||||||
| Other revenues | 234 | 399 | (165) | (41.4) | % | ||||||||||||||||||
| Total revenues | 25,146 | 10,583 | 14,563 | 137.6 | % | ||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Cost of products | 1,585 | 1,306 | 279 | 21.4 | % | ||||||||||||||||||
| Cost of services | 3,497 | 2,858 | 639 | 22.4 | % | ||||||||||||||||||
| Research and development | 36,377 | 35,755 | 622 | 1.7 | % | ||||||||||||||||||
| Selling, general and administrative | 36,496 | 40,197 | (3,701) | (9.2) | % | ||||||||||||||||||
| Impairment of goodwill | 482 | — | 482 | N/A | |||||||||||||||||||
| Impairment of other noncurrent assets | 638 | 543 | 95 | 17.5 | % | ||||||||||||||||||
| Total operating expenses | 79,075 | 80,659 | (1,584) | (2.0) | % | ||||||||||||||||||
| Operating loss | (53,929) | (70,076) | 16,147 | (23.0) | % | ||||||||||||||||||
| Total other expense, net | (4,730) | (14,203) | 9,473 | (66.7) | % | ||||||||||||||||||
| Equity in net loss of affiliates | 861 | (3) | 864 | >200% | |||||||||||||||||||
| Loss from continuing operations before income taxes | (57,798) | (84,282) | 26,484 | (31.4) | % | ||||||||||||||||||
| Income tax benefit | 197 | 173 | 24 | 13.9 | % | ||||||||||||||||||
| Loss from continuing operations | (57,601) | (84,109) | 26,508 | (31.5) | % | ||||||||||||||||||
| Income from discontinued operations, net of income taxes (2) | 108,094 | 16,977 | 91,117 | >200% | |||||||||||||||||||
| Net loss | $ | 50,493 | $ | (67,132) | $ | 117,625 | 175.2 | % | |||||||||||||||
(1)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 5 " appearing elsewhere in this Quarterly Report.
(2)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report.
Collaboration and licensing revenues
Collaboration and licensing revenues increased $14.2 million or greater than 200%, from the nine months ended September 30, 2021 due to the fact we obtained control of Intrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022 and therefore we recognized the remaining balance of deferred revenue associated with the Intrexon Energy Partners and Intrexon Energy Partners II, less the amounts paid to acquire the membership interests of the investors. See "Notes to the Condensed Financial Statements (Unaudited) – Notes 2, 4, 5 and 16” appearing elsewhere in this Quarterly Report for further discussion of Intrexon Energy Partners and Intrexon Energy Partners II.
Product revenues and gross margin
Product revenues decreased $0.4 million, or 22%, from the nine months ended September 30, 2021. The decrease in product revenues was primarily due to product mix and lower customer demand. Gross margin on products declined in the current period as a result of the decreased revenues and an increase in salaries, benefits, and other personnel costs.
Service revenues and gross margin
Service revenues increased $1.0 million, or 12%, over the nine months ended September 30, 2021. The increase in service revenues was primarily due to higher demand from existing and new customers in the early part of 2022 as well as a
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combination of price increases and a change in the pricing structure with certain customers. Gross margin on services remained comparable to the prior year as increased revenues were offset by increased costs for supplies, drugs, and personnel costs.
Research and development expenses
Research and development expenses increased $0.6 million, or 2%, over the nine months ended September 30, 2021. Salaries, benefits, and other personnel costs increased $2.2 million due to an increase in the hiring of employees to support the growth in the Company's development activities. This increase was partially offset with a decrease of contract research organization costs and lab supplies of $1.6 million, primarily due to timing differences, the completion of our 1b/2a clinical trial of AG019 in the fourth quarter of the prior year, and as well as a continued prioritization of clinical product candidates with less expense incurred related preclinical research programs for the comparable period.
Selling, general and administrative expenses
SG&A expenses decreased $3.7 million, or 9%, from the nine months ended September 30, 2021. Salaries, benefits, and other personnel costs decreased $3.6 million primarily due to $2.6 million reduced stock compensation in 2022 and reduced head count.
Total other expense, net
Total other expense, net, is primarily related to our Convertible Notes issued July 2018. The current period decrease is primarily due to the adoption of a new accounting standard effective January 1, 2022 noted above, which simplified the accounting for the Convertible Notes, reduced non-cash interest expense and as well as a $0.9 million gain in connection with the early retirement of a portion of our Convertible Notes. The extinguishment of these Convertible Notes will alleviate us of $3.2 million in future cash interest payments had we held the Convertible Notes until maturity.
Segment performance
The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the nine months ended September 30, 2022 and 2021, for each of our reportable segments as well as unallocated corporate costs.
| Nine Months Ended September 30, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Segment Adjusted EBITDA: | |||||||||||||||||||||||
Biopharmaceuticals | $ | (35,286) | $ | (34,055) | $ | (1,231) | (3.6) | % | |||||||||||||||
| Exemplar | 4,699 | 5,312 | (613) | (11.5) | % | ||||||||||||||||||
| Unallocated corporate costs | (24,718) | (24,835) | 117 | (0.5) | % | ||||||||||||||||||
For a reconciliation of Segment Adjusted EBITDA to net loss from continuing operations before income taxes, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 18" appearing elsewhere in this Quarterly Report.
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The following table summarizes revenues from external customers for the nine months ended September 30, 2022 and 2021, for each of our reportable segments.
| Nine Months Ended September 30, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
Biopharmaceuticals | $ | 14,778 | $ | 723 | $ | 14,055 | >200% | ||||||||||||||||
| Exemplar | 10,368 | 9,860 | 508 | 5.2 | % | ||||||||||||||||||
Biopharmaceuticals
Biopharmaceuticals collaboration and licensing revenues increased due to the fact we obtained control of Intrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022 and therefore we recognized the remaining balance of deferred revenue associated with Intrexon Energy Partners and Intrexon Energy Partners II, less the amounts paid to acquire the membership interests of the investors. See "Notes to the Condensed Financial Statements (Unaudited) – Notes 2, 4, 5 and 16” appearing elsewhere in this Quarterly Report for further discussion of Intrexon Energy Partners and Intrexon Energy Partners II.
Exemplar
Revenues for Exemplar increased due to an increase in services performed resulting from a higher demand from existing and new customers. The improvement in Segment Adjusted EBITDA was primarily due to the increased revenues in the first half of 2022.
Unallocated Corporate Costs
Unallocated corporate costs increased primarily due to increased professional fees including legal fees associated with certain matters.
Liquidity and capital resources
Sources of liquidity
We have historically financed our operations primarily through public offerings and private placements of our capital stock, and up front and milestone consideration received under our collaboration and licensing agreements. In addition, cash flows from our Exemplar segment and businesses previously sold (including proceeds from those sales) have provided sources of funds to finance our operations. As of September 30, 2022, we had $71,327 in cash, cash equivalents, and short-term investments.
At-the-Market Sales Agreement
As disclosed in "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 13" appearing elsewhere in this Quarterly Report, on August 9, 2022, we entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. Pursuant to which we may issue and sell from time to time shares of Company’s common stock of up to $100,000. The Company has no obligation to sell any of the Shares under the Sales Agreement, and may at any time suspend or terminate the offering of its common stock pursuant to the Sales Agreement upon notice and subject to other conditions. The Company intends to use the proceeds of the offering, when and if utilized, to fund the development of clinical and preclinical product candidates and for working capital and other general corporate purposes.
Going Concern
During the nine months ended September 30, 2022, we incurred a loss from continuing operations of $57,601 and used $49,649 of cash in our operations, and as of September 30, 2022, had an accumulated deficit of $1,846,391. We have also incurred operating losses since our inception and management expects operating losses and negative cash flows from operations to continue for the foreseeable future and, as a result, we will require additional capital to fund our operations and execute our business plan. In addition, as of September 30, 2022, we had $153,770 in cash, cash equivalents, short-term investments, and restricted cash, and had no committed source of additional funding from either debt or equity financings, although we may, at our discretion, sell equity securities under the terms of the at-the-market sales agreement, subject to certain conditions and limitations. See “Notes to the Condensed Consolidated Financial Statements (Unaudited) – Note 13” appearing elsewhere in this Quarterly Report for further discussion of our at-the-market sales agreement.
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Given our current cash position and forecasted negative cash flows from operating activities for the foreseeable future, as well as convertible notes of $82,440 that are due on July 1, 2023, management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. See “Notes to the Condensed Consolidated Financial Statements (Unaudited) – Note 11” appearing elsewhere in this Quarterly Report for further discussion of our convertible debt agreement.
Our ability to fund operations on an ongoing basis is dependent upon the successful execution of management’s plans, which include raising additional capital in the near term. This additional capital could be raised through a combination of non-dilutive financings (including collaborations, strategic alliances, monetization of non-core assets, marketing, distribution or licensing arrangements), dilutive financings (including equity and/or debt financings) and, in the longer term, from revenue related to product sales, to the extent its product candidates receive marketing approval and can be commercialized. There can be no assurance that new financings or other transactions will be available to us on commercially acceptable terms, or at all. Also, any collaborations, strategic alliances, monetization of non-core assets or marketing, distribution or licensing arrangement may require us to give up some or all of our rights to a product or technology, which in some cases may be at less than the full potential value of such rights. If we are unable to obtain additional capital, we will assess our capital resources and we may be required to delay, reduce the scope of, or eliminate some or all of our operations, which may include research and development and clinical trials. This may have a material adverse effect on our business, financial condition, results of operations and our ability to operate as a going concern.
We currently generate cash receipts primarily from sales of products and services at our Exemplar segment and from strategic transactions.
Cash flows
The following table sets forth the significant sources and uses of cash for the periods set forth below:
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | (49,649) | $ | (41,182) | |||||||
| Investing activities | 214,996 | (90,469) | |||||||||
| Financing activities | (116,010) | 121,297 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (804) | 264 | |||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 48,533 | $ | (10,090) | |||||||
Cash flows from operating activities:
During the nine months ended September 30, 2022, our net income was $50.5 million, which includes the gain on sale of discontinued operations of $94.7 million which is presented as an adjustment to net income to net cash used in operating activities as the cash flows from the sale is presented within cash flows from investing activities; additional significant noncash expenses totaling $17.0 million from continuing operations which also adjusted net income to net cash from operating activities included: (i) $9.0 million of depreciation and amortization expense and (ii) $8.0 million of stock-based compensation expense
During the nine months ended September 30, 2021, our net loss was $67.1 million, which includes the following significant noncash expenses totaling $30.5 million from both continuing and discontinued operations: (i) $11.5 million of stock-based compensation expense, (ii) $10.4 million of depreciation and amortization expense, and (iii) $8.6 million accretion of debt discount and amortization of deferred financing costs. These expenses were partially offset by a $4.6 million noncash gain recognized upon the termination of our MBP Titan facility lease in January 2021.
Our cash outflows from operations during the nine months ended September 30, 2022 increased $8.5 million from the nine months ended September 30, 2021 primarily due to decreased cash inflows provided by Trans Ova (which was sold in August 2022) and Exemplar.
Cash flows from investing activities:
During the nine months ended September 30, 2022, we received $162.3 million of proceeds from the sale of discontinued operations and $57.0 million of proceeds from maturities of investments.
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During the nine months ended September 30, 2021, we purchased $92.2 million of investments, net of maturities, primarily using the proceeds received from the underwritten public offering discussed below.
Cash flows from financing activities:
During the nine months ended September 30, 2022, we repurchased Convertible Notes for $115.7 million. Additionally, in October 2022, we made additional repurchases of Convertible Notes of $26.4 million.
During the nine months ended September 30, 2021, we received $121.0 million proceeds from the sale of our common stock in an underwritten public offering.
Future capital requirements
As discussed in the liquidity and capital resource section above in Item 2, we believe our existing liquid assets will not be sufficient to enable us to continue as a going concern for the next twelve months without additional capital in the near term. Our future capital requirements will depend on many factors, including:
•progress in our research and development programs, as well as the magnitude of these programs;
•any delays or potential delays to our clinical trials as a result of the COVID-19 pandemic;
•the timing of regulatory approval of our product candidates and those of our collaborations;
•the timing, receipt, and amount of upfront, milestone, and other payments, if any, from present and future collaborators, if any;
•the timing, receipt, and amount of sales and royalties, if any, from our product candidates;
•the timing and capital requirements to scale up our various product candidates and service offerings and customer acceptance thereof;
•our ability to maintain and establish additional collaborative arrangements and/or new strategic initiatives;
•the resources, time, and cost required for the preparation, filing, prosecution, maintenance, and enforcement of our intellectual property portfolio;
•strategic mergers and acquisitions, if any, including both the upfront acquisition cost as well as the cost to integrate, maintain, and expand the strategic target;
•the costs associated with legal activities, including litigation, arising in the course of our business activities and our ability to prevail in any such legal disputes; and
•the effects, duration, and severity of the ongoing COVID-19 pandemic and the actions we have taken or may take in response, any of which could significantly impact our business, operations, and financial results.
Until such time, if ever, as we can regularly generate positive operating cash flows, we plan to finance our cash needs through a combination of equity offerings, debt financings, government, or other third-party funding, strategic alliances, sales of assets, and licensing arrangements. As the COVID-19 pandemic continues to negatively impact the economy, our future access to capital on favorable terms may be materially impacted. We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Our current stock price may make it more difficult to pursue equity financings and lead to substantial dilution if the price of our common stock does not increase. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through strategic transactions, collaborations, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or to grant licenses on terms that may not be favorable to us.
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We are subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development, and clinical manufacturing of its product candidates. Our success is dependent upon our ability to continue to raise additional capital in order to fund ongoing research and development, adequately satisfy or renegotiate long-term debt obligations, obtain regulatory approval of our products, successfully commercialize our products, generate revenue, meet our obligations, and, ultimately, attain profitable operations. Our ability to achieve what is necessary for our success may be negatively impacted by the uncertainty caused by the COVID-19 pandemic.
See the section entitled "Risk Factors" in our Annual Report for additional risks associated with our substantial capital requirements.
Contractual obligations and commitments
The following table summarizes our significant contractual obligations and commitments from continuing operations as of September 30, 2022 and the effects such obligations are expected to have on our liquidity and cash flows in future periods:
| Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Operating leases | $ | 12,819 | $ | 1,988 | $ | 4,336 | $ | 3,079 | $ | 3,416 | |||||||||||||||||||
| Convertible debt (1) | 82,440 | 82,440 | — | — | |||||||||||||||||||||||||
| Cash interest payable on convertible debt | 2,850 | 2,850 | — | — | |||||||||||||||||||||||||
| Total | $ | 98,109 | $ | 87,278 | $ | 4,336 | $ | 3,079 | $ | 3,416 | |||||||||||||||||||
(1)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Notes 11" appearing elsewhere in this Quarterly Report for further discussion of our convertible debt.
In addition to the obligations in the table above, as of September 30, 2022 we also have the following significant contractual obligations described below.
We are party to in-licensed research and development agreements with various academic and commercial institutions where we could be required to make future payments for annual maintenance fees as well as for milestones and royalties we might receive upon commercial sales of products that incorporate their technologies. These agreements are generally subject to termination by us and therefore no amounts are included in the tables above. As of September 30, 2022, we also had research and development commitments with third parties totaling $21.8 million that had not yet been incurred.
Net operating losses
As of September 30, 2022, we had net operating loss carryforwards of approximately $818.0 million for U.S. federal income tax purposes available to offset future taxable income, including $603.0 million generated after 2017, U.S. capital loss carryforwards of $212.5 million, and U.S. federal and state research and development tax credits of approximately $11.7 million, prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382. Net operating loss carryforwards generated prior to 2018 have begun to expire in 2022, and capital loss carryforwards will expire if unutilized beginning in 2024. Our foreign subsidiaries included in continuing operations have foreign loss carryforwards of approximately $64.2 million, most of which do not expire. Excluding certain deferred tax liabilities totaling $2.1 million, our remaining net deferred tax assets, which primarily relate to these loss carryforwards, are offset by a valuation allowance due to our history of net losses.
As a result of our past issuances of stock, as well as due to prior mergers and acquisitions, certain of our net operating losses have been subject to limitations pursuant to Section 382. As of September 30, 2022, Precigen has utilized all net operating losses subject to Section 382 limitations, other than those losses inherited via acquisitions. As of September 30, 2022, approximately $41.4 million of available domestic net operating losses were inherited via acquisitions and are limited based on the value of the target at the time of the transaction. Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.
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Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.
Critical accounting policies and estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report.
Recent accounting pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 2" appearing elsewhere in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following sections provide quantitative information on our exposure to interest rate risk. We make use of sensitivity analyses that are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.
Interest rate risk
We had cash, cash equivalents, and short-term and long-term investments of $71.3 million and $157.2 million as of September 30, 2022 and December 31, 2021, respectively. Our cash and cash equivalents and short-term and long-term investments consist of cash, money market funds, U.S. government debt securities, and certificates of deposit. The primary objectives of our investment activities are to preserve principal, maintain liquidity, and maximize income without significantly increasing risk. Our investments consist of U.S. government debt securities and certificates of deposit, which may be subject to market risk due to changes in prevailing interest rates that may cause the fair values of our investments to fluctuate. We believe that a hypothetical 100 basis point increase in interest rates would not materially affect the fair value of our interest-sensitive financial instruments and any such losses would only be realized if we sold the investments prior to maturity.
Item 4. Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we carried out an evaluation, under supervision and with the participation of our management, including our Chief Executive Officer ("CEO"), who is our principal executive officer, and our Chief Financial Officer ("CFO"), who is our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, as of the end of the period covered by this report, our CEO and CFO concluded that our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting during the three months ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the course of our business, we are involved in litigation or legal matters, including governmental investigations. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. We accrue liabilities for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. As of September 30, 2022, we do not believe that any such matters, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations, or cash flows.
See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 16" appearing elsewhere in this Quarterly Report for further discussion of ongoing legal matters.
Item 1A. Risk Factors
As disclosed in "Summary of Risk Factors" and "Item 1A. Risk Factors" in our Annual Report, there are a number of risks and uncertainties that may have a material effect on the operating results of our business and our financial condition. There are no additional material updates or changes to our risk factors since the filing of our Annual Report, except as discussed below.
In evaluating our risks, readers also should carefully consider the risk factors discussed in our Annual Report and the risk factor included in this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition, or operating results, in addition to the other information set forth in this report and in our other filings with the SEC.
The proceeds received from the sale of our subsidiary, Trans Ova, together with certain additional funds, were placed in a segregated account upon the closing of the Transaction and must be used for certain permitted purposes, including resolution of our outstanding convertible bonds, and therefore we have limited discretion in the use of proceeds and the additional funds we put in.
On July 1, 2022, we entered into an agreement (the “Purchase Agreement”) to sell 100% of the outstanding membership interests of Trans Ova Genetics, L.C., an Iowa limited liability company (“Trans Ova”), our wholly-owned subsidiary, to Spring Bidco LLC, a Delaware limited liability company (the “Buyer”) in exchange for $170.0 million in cash payable at the closing of the transaction (subject to a working capital adjustment mechanism) and up to $10.0 million in cash in earn-out payments over two years (the “Transaction”).
In connection with the closing of the Transaction, as of September 30, 2022, we held a total of $82.4 million, in a segregated account and will use such funds for certain permitted purposes, including resolution of our outstanding convertible bonds. Therefore, we have limited discretion in the use of proceeds in the segregated account, which may have a negative impact on our liquidity and ability to satisfy our capital requirements and we may be prevented from using the cash opportunistically for other purposes.
There is substantial doubt about our ability to continue as a going concern.
During the nine months ended September 30, 2022, we incurred a loss from continuing operations of $57.6 million and used $49.7 million of cash in our operations, and as of September 30, 2022, had an accumulated deficit of $1,846 million. Given the our current cash position and forecasted negative cash flows from operating activities for the foreseeable future, as well as convertible notes with a face value of $82.4 million that are due on July 1, 2023, management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern.Our ability to fund our operations is dependent upon our management’s plans, which include raising additional capital in the near term. This additional capital could be raised through a combination of non-dilutive financings (including collaborations, strategic alliances, monetization of non-core assets, marketing, distribution or licensing arrangements), dilutive financings (including equity and/or debt financings) and, in the longer term, from revenue related to product sales, to the extent its product candidates receive marketing approval and can be commercialized. There can be no assurance that new financings or other transactions will be available to us on commercially acceptable terms, or at all, and such financings may adversely affect the holdings or rights of our stockholders and may cause significant dilution to existing stockholders.
Further, the doubt regarding our potential ability to continue as a going concern may adversely affect our ability to obtain new financing on reasonable terms or at all. Also, any collaborations, strategic alliances, monetization of non-core assets or
52
marketing, distribution or licensing arrangement may require us to give up some or all of our rights to a product or technology, which in some cases may be at less than the full potential value of such rights. If we are unable to obtain additional capital, we will assess our capital resources and may be required to delay, reduce the scope of, or eliminate some or all of our operations, which may include research and development and clinical trials. This may have a material adverse effect on our business, financial condition, results of operations and ability to operate as a going concern. The accompanying unaudited financial statements do not include any adjustments that might be necessary if we are not able to continue as a going concern. Additionally, if we are unable to continue as a going concern, our stockholders may lose some or all of their investment in us. See also “Notes to Condensed Consolidated Financial Statement (Unaudited) – Note 2” appearing elsewhere in this Quarterly Report for additional discussion of our liquidity and ability to continue as a going concern.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit No. | Description | |||||||
| 1.1 | ||||||||
| 2.1 | ||||||||
| 2.2 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1** | ||||||||
| 32.2** | ||||||||
| 101** | Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended September 30, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language)). Attached as Exhibit 101.0 to this Quarterly Report on Form 10-Q are the following documents formatted in XBRL: (i) the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021, (iii) the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021, (iv) the Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended September 30, 2022 and 2021, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, and (vi) the Notes to the Condensed Consolidated Financial Statements. | |||||||
| 104** | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |||||||
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Precigen, Inc. | ||||||||||||||
| (Registrant) | ||||||||||||||
| Date: November 9, 2022 | By: | /s/ HARRY THOMASIAN JR. | ||||||||||||
| Harry Thomasian Jr. | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
| (Principal Financial and Accounting Officer) | ||||||||||||||
55
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Helen Sabzevari, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Precigen, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 9, 2022
| /s/ HELEN SABZEVARI | ||
| Helen Sabzevari | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Harry Thomasian Jr., certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Precigen, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 9, 2022
| /s/ HARRY THOMASIAN JR. | ||
| Harry Thomasian Jr. | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Helen Sabzevari, Chief Executive Officer of Precigen, Inc. (the "Company"), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
•the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2022 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
•the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 9, 2022
| /s/ HELEN SABZEVARI | ||
| Helen Sabzevari | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Harry Thomasian Jr., Chief Financial Officer of Precigen, Inc. (the "Company"), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
•the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2022 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
•the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 9, 2022
| /s/ HARRY THOMASIAN JR. | ||
| Harry Thomasian Jr. | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.