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 endedDecember 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 receivedU.S. Food and Drug Administration , or FDA, clearance for manufacturing UltraCAR-T cells in clinical trials, and sinceNovember 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 subsidiariesPGEN Therapeutics, Inc. , or PGEN Therapeutics, andPrecigen ActoBio, Inc. , or ActoBio, and our majority ownership interest inTriple-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 35
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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 the following:
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 theCenter 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 theNational 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. InJanuary 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. InApril 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. InJanuary 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 36
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Histologically confirmed unresectable or metastatic TNBC. The study will consist of two parts: an initial dose increase of 3+3 in each arm followed by a dose expansion to the maximum tolerated dose. Arm 1 and Arm 2 will be enrolled 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.
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-Gen
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.
Associate Program
We have partnered withCastle 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. InMarch 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. 37
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Table of Contents 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.
Impact of COVID-19
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 business. 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 paramount importance. We have implemented security measures in our facilities for the well-being of our employees and visitors. These measures have allowed us to continue advancing in our programs, with the ultimate goal of benefiting patients.
For more information on the risks associated with COVID-19 and its impact on our business, please 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. InJanuary 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 toPrecigen, 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 byMBP 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 byDecember 31, 2020 , with the final disposition of certain property and equipment and the facility operating lease occurring inJanuary 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 thePrecigen corporate level. These remaining assets and contractual obligations include our equity interest in and collaboration agreements withIntrexon Energy Partners, LLC ("Intrexon Energy Partners "), andIntrexon 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 the “Notes to the Summarized Consolidated Financial Statements (Unaudited) – Notes 3 and 5” appearing elsewhere in the Quarterly Report, effective as of
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 Summarized Consolidated Financial Statements (Unaudited) – Notes 2, 4, 5 and 16” appearing elsewhere in this Quarterly Report for a discussion of
segments
As ofSeptember 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 endedSeptember 30, 2022 . The Company's segment presentation excludes amounts related to the operations ofTrans 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 Summary
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 endedSeptember 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.
Please see a more detailed discussion of our ability to continue as a going concern below in the Liquidity and Capital Resources section of Item 2.
sources of income
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 mainly of:
•salaries and benefits, including stock-based compensation expenses, for personnel in research and development roles;
•fees paid to consultants and contract research organizations that conduct research on our behalf and at our direction;
• costs related to laboratory supplies used in our research and development efforts and the acquisition, development and manufacture of materials for preclinical studies and clinical trials;
• costs related to certain reacquired rights to licensed technology or ongoing research and development;
•amortization of patents and related technologies acquired in mergers and acquisitions; Y
•Facility-related expenses, including direct depreciation costs and unallocated expenses for rental 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 endedSeptember 30, 2022 and 2021. 40
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Three Months Ended Nine Months Ended
September 30, 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.
Selling, general and administrative expenses may fluctuate in the future depending on the scale of our corporate functions required to support our corporate initiatives and the results 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 effectiveJanuary 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. InSeptember 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.
Participation in the net profit (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
The following table summarizes our results of operations for the three months endedSeptember 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage: Three Months Ended September 30, Dollar Percent 2022 2021 Change Change (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 Summarized Consolidated Financial Statements (Unaudited) – Note 5” that appears elsewhere in this Quarterly Report.
(2) See “Notes to the Condensed Consolidated Financial Statements (Unaudited) – Note 3” that appears 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 endedSeptember 30, 2021 due to the fact we obtained control ofIntrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022 and therefore we recognized the remaining balance of deferred revenue associated withIntrexon Energy Partners andIntrexon 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 ofIntrexon Energy Partners and Intrexon Energy Partners II. 42
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Product revenue and gross margin
Product revenues decreased$0.2 million , or 38%, from the three months endedSeptember 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 revenue and gross margin
Service revenues decreased$0.9 million , or 34%, from the three months endedSeptember 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 endedSeptember 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 endedSeptember 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 expenses, net
Total other expense, net, is primarily related to our Convertible Notes issuedJuly 2018 . The current period decrease is primarily due to the adoption of a new accounting standard effectiveJanuary 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$3.2 million in future cash interest payments had we held the Convertible Notes until maturity.
segment performance
The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the three months endedSeptember 30, 2022 and 2021, for each of our reportable segments as well as unallocated corporate costs. Three Months Ended September 30, Dollar Percent 2022 2021 Change Change (In thousands) Segment Adjusted EBITDA: Biopharmaceuticals$ (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 adjusted EBITDA by segment 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 endedSeptember 30, 2022 and 2021, for each of our reportable segments. Three Months Ended September 30, Dollar Percent 2022 2021 Change Change (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 ofIntrexon Energy Partners and Intrexon Energy Partners II and therefore we recognized the remaining balance of deferred revenue associated withIntrexon 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 ofIntrexon Energy Partners andIntrexon Energy Partners II. Exemplar
Exemplar’s revenues decreased due to a decrease in services provided as a result of lower demand from existing customers. The decrease in adjusted EBITDA by segment was mainly due to lower revenues and higher personnel costs.
Unallocated corporate costs
Unallocated corporate costs decreased primarily due to lower professional fees, including legal fees associated with certain matters, and a reduction in the number of employees.
Comparison of the nine months ended
The following table summarizes our results of operations for the nine months endedSeptember 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage: 44
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Nine Months Ended
September 30, Dollar Percent
2022 2021 Change Change
(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 Summarized Consolidated Financial Statements (Unaudited) – Note 5” that appears elsewhere in this Quarterly Report.
(2) See “Notes to the Condensed Consolidated Financial Statements (Unaudited) – Note 3” that appears elsewhere in this Quarterly Report.
Collaboration revenue and licenses
Collaboration and licensing revenues increased$14.2 million or greater than 200%, from the nine months endedSeptember 30, 2021 due to the fact we obtained control ofIntrexon 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 theIntrexon 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 ofIntrexon Energy Partners and Intrexon Energy Partners II.
Product revenue and gross margin
Product revenue decreased
Service revenue and gross margin
Service revenue increased
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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 endedSeptember 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 endedSeptember 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 issuedJuly 2018 . The current period decrease is primarily due to the adoption of a new accounting standard effectiveJanuary 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$3.2 million in future cash interest payments had we held the Convertible Notes until maturity.
segment performance
The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the nine months endedSeptember 30, 2022 and 2021, for each of our reportable segments as well as unallocated corporate costs. Nine Months Ended September 30, Dollar Percent 2022 2021 Change Change (In thousands) Segment Adjusted EBITDA: Biopharmaceuticals$ (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 adjusted EBITDA by segment 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 endedSeptember 30, 2022 and 2021, for each of our reportable segments. Nine Months Ended September 30, Dollar Percent 2022 2021 Change Change (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 ofIntrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022 and therefore we recognized the remaining balance of deferred revenue associated withIntrexon 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 ofIntrexon Energy Partners andIntrexon Energy Partners II.
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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
Liquidity Sources
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 ofSeptember 30, 2022 , we had$71,327 in cash, cash equivalents, and short-term investments.
Market Sale Agreement
As disclosed in "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 13" appearing elsewhere in this Quarterly Report, onAugust 9, 2022 , we entered into a Controlled Equity Offering Sales Agreement withCantor 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 endedSeptember 30, 2022 , we incurred a loss from continuing operations of$57,601 and used$49,649 of cash in our operations, and as ofSeptember 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 ofSeptember 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. 47
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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 onJuly 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 in our Exemplary segment and from strategic transactions.
Cash flow
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 variations on cash, cash equivalents and restricted cash
(804) 264
Net increase (decrease) in cash, cash equivalents and restricted cash
$
48,533
Cash flows from operating activities: During the nine months endedSeptember 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 endedSeptember 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 inJanuary 2021 . Our cash outflows from operations during the nine months endedSeptember 30, 2022 increased$8.5 million from the nine months endedSeptember 30, 2021 primarily due to decreased cash inflows provided byTrans Ova (which was sold inAugust 2022 ) and Exemplar.
Cash flows from investing activities:
During the nine months endedSeptember 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. 48
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During the nine months endedSeptember 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 that ended
During the nine months that ended
product of the sale of our ordinary shares in a subscribed 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 delay or potential delay in 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 advance, milestone, and other payments, if any, from current and prospective employees, if any;
•the timing, receipt and amount of sales and royalties, if any, from our candidate products;
•the time and capital requirements to expand our various candidate product and service offerings and their acceptance by customers;
•our ability to maintain and establish additional collaborative agreements and/or new strategic initiatives;
•the resources, time and cost necessary for the preparation, presentation, processing, maintenance and fulfillment of our portfolio of intellectual property;
• strategic mergers and acquisitions, if any, including both the initial cost of acquisition and the cost of integration, maintenance and expansion of the strategic objective;
•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.
Please see the section titled “Risk Factors” in our Annual Report for additional risks associated with our material capital requirements.
Obligations and contractual commitments
The following table summarizes our significant contractual obligations and commitments from continuing operations as ofSeptember 30, 2022 and the effects such obligations are expected to have on our liquidity and cash flows in future periods: Less Than More Than Total 1 Year 1 - 3 Years 3 - 5 Years 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 previous table, from
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 ofSeptember 30, 2022 , we also had research and development commitments with third parties totaling$21.8 million that had not yet been incurred.
Net operating loss
As ofSeptember 30, 2022 , we had net operating loss carryforwards of approximately$818.0 million forU.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 , andU.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 ofSeptember 30, 2022 ,Precigen has utilized all net operating losses subject to Section 382 limitations, other than those losses inherited via acquisitions. As ofSeptember 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. 50
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off-balance sheet arrangements
During the periods presented, we did not have, and currently do not have, any off-balance sheet arrangements as defined in
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 inthe 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.
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