Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our chief executive officer, our executive chairman, and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on their evaluation of our disclosure controls and procedures as of December 31, 2020, our chief executive officer, executive chairman, and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and Rule 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed 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. Our internal control over financial reporting includes those policies and procedures that:
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(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2020, as stated in their report, which is included in Part II Item 8 of this Annual Report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is hereby incorporated by reference to our Definitive Proxy Statement relating to our 2021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
Our board of directors has adopted a Code of Business Conduct and Ethics applicable to all officers, directors, and employees, which is available on our website ( investors.precigen.com ) under "Corporate Governance." We will provide a copy of this document, without charge, upon request, by writing to us at Precigen, Inc., 20374 Seneca Meadows Parkway, Germantown, Maryland 20876, Attention: Investor Relations. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics by posting such information on our website at the address and location specified above.
Item 11. Executive Compensation
The information required by this item is hereby incorporated by reference to our Definitive Proxy Statement relating to our 2021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is hereby incorporated by reference to our Definitive Proxy Statement relating to our 2021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is hereby incorporated by reference to our Definitive Proxy Statement relating to our 2021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
Item 14. Principal Accounting Fees and Services
The information required by this item is hereby incorporated by reference to our Definitive Proxy Statement relating to our 2021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following consolidated financial statements of Precigen, Inc. and its subsidiaries, and the independent registered public accounting firm reports thereon, are included in Part II, Item 8 of this Annual Report:
1. Financial Statements .
Consolidated Financial Statements of Precigen, Inc. and Subsidiaries
Reports of Independent Registered Public Accounting Firm for the Years Ended December 31, 2020 and 2019
Report of Independent Registered Public Accounting Firm for the Year Ended December 31, 2018
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Shareholders' and Total Equity for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019, and 2018
Notes to the Consolidated Financial Statements
2. Financial Statement Schedules .
All financial statement schedules have been omitted because either the required information is not applicable or the information required is included in the consolidated financial statements and notes thereto included in this Annual Report.
3. Exhibits .
The exhibits are listed in Item 15(b) below.
(b) Exhibits
The following exhibits are filed with this Annual Report or incorporated by reference:
Exhibit No. Description
3.1* Amended and Restated Articles of Incorporation (17)
3.2* Amended and Restated Bylaws (20)
4.1* Specimen certificate evidencing shares of common stock (22)
4.2* Form of Second Amended and Restated Warrant to Purchase Shares of Common Stock (1)
4.3* Base Indenture, dated July 3, 2018, by and between the Company and The Bank of New York Mellon Trust Company, N.A. (10)
4.4* First Supplemental Indenture (including the form of 3.50% convertible senior notes due 2023), dated July 3, 2018, by and between the Company and The Bank of New York Mellon Trust Company, N.A. (10)
4.5 Description of Securities (18)
10.1†* Amended and Restated 2008 Equity Incentive Plan of the Company (1)
10.2†* Amended and Restated 2013 Omnibus Incentive Plan of the Company, effective as of June 9, 2014 (4)
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10.2A†* Amended and Restated 2013 Omnibus Incentive Plan of the Company, Form of Restricted Stock Agreement (4)
10.2B†* Amended and Restated 2013 Omnibus Incentive Plan of the Company, Form of Incentive Stock Option Agreement (4)
10.2C†* Amended and Restated 2013 Omnibus Incentive Plan of the Company, Form of Nonqualified Stock Option Agreement (4)
10.2D†* Amendment to the Amended and Restated 2013 Omnibus Incentive Plan of the Company, effective as of June 11, 2015 (5)
10.2E†* Amendment to the Amended and Restated 2013 Omnibus Incentive Plan of the Company, effective as of June 9, 2016 (6)
10.2F†* Amendment to the Amended and Restated 2013 Omnibus Incentive Plan of the Company, effective as of June 28, 2017 (7)
10.2G†* Amendment to the Amended and Restated 2013 Omnibus Incentive Plan of the Company, as amended, effective as of June 7, 2018 (9)
10.2H†* Amendment to the Amended and Restated 2013 Omnibus Incentive Plan of the Company, as amended, effective as of June 12, 2019 (14)
10.2I†* Amendment to the Amended and Restated 2013 Omnibus Incentive Plan of the Company, as amended, effective January 5, 2020 (19)
10.2J†* Amendment to the Amended and Restated 2013 Omnibus Incentive Plan of the Company, as amended, effective as of June 19, 2020 (21)
10.2K†* 2013 Amended and Restated Omnibus Incentive Plan of the Company, as amended, Form of Restricted Stock Unit Agreement for Officers (8)
10.2L†* 2013 Amended and Restated Omnibus Incentive Plan of the Company, as amended, Form of Restricted Stock Unit Agreement for Directors (8)
10.3* 2019 Incentive Plan of the Company for Non-Employee Service Providers, effective as of June 12, 2019 (14)
10.4†* Form of Continuing Employment Agreement (13)
10.5†* Employment Agreement, dated January 1, 2020, by and between the Company and Helen Sabzevari, Ph.D. (16)
10.6†* Executive Chairman Compensation Arrangement, by and between the Company and Randal J. Kirk (23)
10.7#* Exclusive Channel Collaboration Agreement, dated as of March 26, 2014, by and between the Company and Intrexon Energy Partners, LLC (2)
10.8#* Amended and Restated Limited Liability Company Agreement of Intrexon Energy Partners, LLC, dated as of March 26, 2014, by and among the Company and the parties thereto (2)
10.9* Securities Issuance Agreement by and among the Company, The University of Texas System Board of Regents on behalf of The University of Texas MD Anderson Cancer Center dated as of January 13, 2015 (3)
10.10#* Exclusive License Agreement, dated October 5, 2018, by and between Precigen, Inc. and ZIOPHARM Oncology, Inc. (11)
10.11†* Annual Executive Incentive Plan of the Company, adopted as of April 29, 2015 (5)
10.12* Share Lending Agreement, dated June 28, 2018, by and between the Company, J.P. Morgan Securities LLC and JPMorgan Chase Bank, National Association, New York Branch (10)
10.13#* Securities Purchase, Assignment and Assumption Agreement, dated December 19, 2018, by and between the Company, ARES TRADING S.A. and Precigen, Inc. (12)
10.14* Stock and Asset Purchase Agreement, dated January 1, 2020, by and between the Company and TS Biotechnology Holdings, LLC (15)
10.15* Subscription Agreement, dated January 1, 2020, by and between the Company and TS Biotechnology Holdings, LLC (15)
21.1 List of Subsidiaries of Precigen, Inc.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP
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31.1 Certification of Helen Sabzevari, Chief Executive Officer (Principal Executive Officer) of Precigen, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Rick L. Sterling, Chief Financial Officer (Principal Financial Officer) of Precigen, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1** Certification of Helen Sabzevari, Chief Executive Officer (Principal Executive Officer) of Precigen, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2** Certification of Rick L. Sterling, Chief Financial Officer (Principal Financial Officer) of Precigen, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101** Interactive Data File (Precigen, Inc. and Subsidiaries Consolidated Financial Statements for the years ended December 31, 2020, 2019, and 2018, formatted in Inline XBRL (eXtensible Business Reporting Language)).
Attached as Exhibit 101 are the following documents formatted in XBRL: (i) the Consolidated Balance Sheets as of December 31, 2020 and 2019, (ii) the Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018, (iii) the Consolidated Statements of Shareholders' and Total Equity for the years ended December 31, 2020, 2019, and 2018, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018 and (v) the Notes to the Consolidated Financial Statements.
104** Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Previously filed and incorporated by reference to the exhibit indicated in the following filings by the Company:
(1) Amendment No. 1 to Registration Statement on Form S-1, filed with the Securities and Exchange Commission on July 29, 2013.
(2) Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on April 4, 2014.
(3) Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 14, 2015.
(4) Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 13, 2014.
(5) Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 17, 2015.
(6) Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 13, 2016.
(7) Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 30, 2017.
(8) Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 1, 2018.
(9) Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 8, 2018.
(10) Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 3, 2018.
(11) Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 8, 2018.
(12) Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 1, 2019.
(13) Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 9, 2019.
(14) Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 9, 2019.
(15) Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 2, 2020.
(16) Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 7, 2020.
(17) Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 4, 2020.
(18) Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 2, 2020.
(19) Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 11, 2020.
(20) Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 4, 2020.
(21) Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 19, 2020.
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(22) Registration Statement on Form S-3, filed with the Securities and Exchange Commission on June 22, 2020.
(23) Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 9, 2020.
** Furnished herewith
† Indicates management contract or compensatory plan.
# Portions of the exhibit (indicated by asterisks) have been omitted in compliance with Item 601 of Regulation S-K.
(c) Financial Statement Schedules
The response to Item 15(a)2 is incorporated herein by reference.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 1, 2021
PRECIGEN, INC.
By: /S/ HELEN SABZEVARI
Helen Sabzevari
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ HELEN SABZEVARI Chief Executive Officer and Director
(Principal Executive Officer) 3/1/2021
Helen Sabzevari
/S/ RICK L. STERLING Chief Financial Officer
(Principal Accounting and Financial Officer) 3/1/2021
Rick L. Sterling
/S/ RANDAL J. KIRK Executive Chairman 3/1/2021
Randal J. Kirk
/S/ CESAR L. ALVAREZ Director 3/1/2021
Cesar L. Alvarez
/S/ STEVEN FRANK Director 3/1/2021
Steven Frank
/S/ VINITA D. GUPTA Director 3/1/2021
Vinita D. Gupta
/S/ FRED HASSAN Director 3/1/2021
Fred Hassan
/S/ JEFFREY B. KINDLER Director 3/1/2021
Jeffrey B. Kindler
/S/ DEAN J. MITCHELL Director 3/1/2021
Dean J. Mitchell
/S/ ROBERT B. SHAPIRO Director 3/1/2021
Robert B. Shapiro
/S/ JAMES S. TURLEY Director 3/1/2021
James S. Turley
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Index to the Financial Statements and Schedules
Page(s)
Consolidated Financial Statements of Precigen, Inc. and Subsidiaries
F- 2
Reports of Independent Registered Public Accounting Firm for the Years Ended December 31, 2020 and 2019
F- 3
Report of Independent Registered Public Accounting Firm for the Year Ended December 31, 2018
F- 6
Consolidated Balance Sheets as of December 31, 2020 and 2019
F- 7
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019, and 2018
F- 9
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020, 2019, and 2018
F- 10
Consolidated Statements of Shareholders' and Total Equity for the Years Ended December 31, 2020, 2019, and 2018
F- 11
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019, and 2018
F- 14
Notes to the Consolidated Financial Statements
F- 17
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Precigen, Inc. and Subsidiaries
Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Precigen, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Precigen, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, shareholders' and total equity, and cash flows, for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill - Trans Ova Reporting Unit - Refer to Notes 2 and 11 to the financial statements
Critical Audit Matter Description
The Company's goodwill balance was $54.4 million as of December 31, 2020, of which $16.6 million is allocated to the Trans Ova reporting unit. The Company's evaluation of goodwill for impairment involves the comparison of the fair value of the reporting unit to its carrying amount. The forecast used in the Company's estimation of fair value was developed by management based on historical operating results, incorporating adjustments to reflect management's planned changes in operations and market considerations. The discount rate utilizes a risk adjusted weighted average cost of capital. Given the significant estimates and assumptions management makes to estimate the fair value of the Trans Ova reporting unit and the sensitivity of Trans Ova's valuation to changes in these estimates, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenues, operating margins, and cash flow ("forecasts"), and the selection of the discount rate for the Trans Ova reporting unit included the following, among others:
• We tested the operating effectiveness of controls over management's goodwill impairment evaluation, including those over the determination of the Trans Ova reporting unit fair value, such as controls related to management's forecasts and selection of the discount rate.
• We evaluated management's ability to accurately forecast revenues and operating margins by comparing actual results to management's historical forecasts, as well as external information.
• We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, (3) industry growth projections, and (4) forecasted information prepared in the prior year.
• With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management.
/s/ Deloitte & Touche LLP
Baltimore, Maryland
March 1, 2021
We have served as the Company’s auditor since 2019.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Precigen, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Precigen, Inc. and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 1, 2021 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Baltimore, Maryland
March 1, 2021
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Precigen, Inc.
Opinion on the Financial Statements
We have audited the consolidated statements of operations, comprehensive loss, shareholders’ and total equity and cash flows of Precigen, Inc. (formerly known as Intrexon Corporation) and its subsidiaries (the “Company”) for the year ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses, cash outflows from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/ s / PricewaterhouseCoopers LLP
Atlanta, Georgia
March 1, 2019, except for the effects of discontinued operations discussed in the Transactions with TS Biotechnology Holdings, LLC and Darling Ingredients, Inc . section within Note 3 and the change in composition of reportable segments discussed in Note 20, as to which the date is March 2, 2020, and the effects of discontinued operations discussed in the MBP Titan section within Note 3, as to which the date is March 1, 2021.
We served as the Company's auditor from 2006 to 2019.
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Precigen, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2020 and 2019
(Amounts in thousands, except share data) 2020 2019
Assets
Current assets
Cash and cash equivalents $ 51,792 $ 65,793
Short-term investments 48,325 9,260
Receivables
Trade, less allowance for credit losses of $ 4,825 and $ 5,201 as of December 31, 2020 and 2019, respectively
16,487 20,650
Related parties, less allowance for credit losses of $ 1,509 and $ 2,312 as of December 31, 2020 and 2019, respectively
19 600
Notes 3,689 2,942
Other 232 2,030
Inventory 11,359 16,097
Prepaid expenses and other 7,192 5,827
Current assets held for sale or abandonment 9,853 111,444
Total current assets 148,948 234,643
Property, plant and equipment, net 34,924 43,952
Intangible assets, net 65,396 68,346
Goodwill 54,363 54,119
Investments in affiliates — 1,461
Right-of-use assets 9,353 11,803
Other assets 1,603 1,349
Noncurrent assets held for sale or abandonment — 40,090
Total assets $ 314,587 $ 455,763
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2020 and 2019
(Amounts in thousands, except share data) 2020 2019
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 4,598 $ 5,528
Accrued compensation and benefits 8,097 13,198
Other accrued liabilities 9,549 11,674
Deferred revenue, including $ 0 and $ 877 from related parties as of December 31, 2020 and 2019, respectively
2,800 5,697
Lines of credit — 1,922
Current portion of long-term debt, including $ 0 and $ 31,211 to related parties as of December 31, 2020 and 2019, respectively
360 31,670
Current portion of lease liabilities 2,657 2,634
Related party payables 19 51
Current liabilities held for sale or abandonment 14,047 50,538
Total current liabilities 42,127 122,912
Long-term debt, net of current portion, including $ 0 and $ 25,000 to related parties as of December 31, 2020 and 2019, respectively
171,522 186,321
Deferred revenue, net of current portion, including $ 21,205 and $ 30,182 from related parties as of December 31, 2020 and 2019, respectively
23,023 48,136
Lease liabilities, net of current portion 7,744 10,119
Deferred tax liabilities 2,897 2,834
Other long-term liabilities 100 —
Long-term liabilities held for sale or abandonment — 13,730
Total liabilities 247,413 384,052
Commitments and contingencies (Note 17)
Shareholders' equity
Common stock, no par value, 400,000,000 shares authorized as of December 31, 2020 and 2019; and 187,663,207 shares and 163,274,880 shares issued and outstanding as of December 31, 2020 and 2019, respectively
— —
Additional paid-in capital 1,886,567 1,752,048
Accumulated deficit ( 1,823,390 ) ( 1,652,869 )
Accumulated other comprehensive income (loss) 3,997 ( 27,468 )
Total shareholders' equity 67,174 71,711
Total liabilities and shareholders' equity $ 314,587 $ 455,763
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 2020, 2019 and 2018
(Amounts in thousands, except share and per share data) 2020 2019 2018
Revenues
Collaboration and licensing revenues, including $ 3,053 , $ 11,832 , and $ 55,573 from related parties in 2020, 2019, and 2018, respectively
$ 21,208 $ 14,059 $ 69,540
Product revenues 24,349 23,780 28,486
Service revenues 56,899 51,803 52,419
Other revenues 722 1,080 733
Total revenues 103,178 90,722 151,178
Operating Expenses
Cost of products 28,550 31,930 35,087
Cost of services 26,963 29,471 27,589
Research and development 41,644 66,666 333,007
Selling, general and administrative 91,704 98,634 125,162
Impairment of goodwill — 29,820 —
Impairment of other noncurrent assets 920 990 —
Total operating expenses 189,781 257,511 520,845
Operating loss ( 86,603 ) ( 166,789 ) ( 369,667 )
Other Expense, Net
Unrealized and realized appreciation (depreciation) in fair value of equity securities and preferred stock, net — 8,291 ( 28,273 )
Interest expense ( 18,400 ) ( 17,666 ) ( 8,473 )
Interest and dividend income 2,451 3,871 19,017
Other income (expense), net ( 165 ) 3,445 470
Total other expense, net ( 16,114 ) ( 2,059 ) ( 17,259 )
Equity in net loss of affiliates ( 1,138 ) ( 2,416 ) ( 8,986 )
Loss from continuing operations before income taxes ( 103,855 ) ( 171,264 ) ( 395,912 )
Income tax benefit 82 930 15,425
Loss from continuing operations ( 103,773 ) ( 170,334 ) ( 380,487 )
Loss from discontinued operations, net of income tax benefit ( 66,748 ) ( 153,582 ) ( 134,219 )
Net loss $ ( 170,521 ) $ ( 323,916 ) $ ( 514,706 )
Net loss attributable to the noncontrolling interests — 1,592 5,370
Net loss attributable to Precigen $ ( 170,521 ) $ ( 322,324 ) $ ( 509,336 )
Amounts Attributable to Precigen
Net loss from continuing operations attributable to Precigen $ ( 103,773 ) $ ( 168,742 ) $ ( 375,117 )
Net loss from discontinued operations attributable to Precigen ( 66,748 ) ( 153,582 ) ( 134,219 )
Net loss attributable to Precigen $ ( 170,521 ) $ ( 322,324 ) $ ( 509,336 )
Net Loss per Share
Net loss from continuing operations attributable to Precigen per share, basic and diluted $ ( 0.62 ) $ ( 1.09 ) $ ( 2.90 )
Net loss from discontinued operations attributable to Precigen per share, basic and diluted ( 0.40 ) ( 1.00 ) ( 1.03 )
Net loss attributable to Precigen per share, basic and diluted $ ( 1.02 ) $ ( 2.09 ) $ ( 3.93 )
Weighted average shares outstanding, basic and diluted 167,065,539 154,138,774 129,521,731
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
Years Ended December 31, 2020, 2019 and 2018
(Amounts in thousands) 2020 2019 2018
Net loss $ ( 170,521 ) $ ( 323,916 ) $ ( 514,706 )
Other comprehensive income (loss):
Unrealized gain (loss) on investments 6 68 ( 59 )
Gain (loss) on foreign currency translation adjustments 4,502 1,087 ( 13,073 )
Release of cumulative foreign currency translation adjustments to net loss from discontinued operations 26,957 — —
Comprehensive loss ( 139,056 ) ( 322,761 ) ( 527,838 )
Comprehensive loss attributable to the noncontrolling interests — 1,581 5,548
Comprehensive loss attributable to Precigen $ ( 139,056 ) $ ( 321,180 ) $ ( 522,290 )
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Consolidated Statements of Shareholders' and Total Equity
Years Ended December 31, 2020, 2019 and 2018
(Amounts in thousands, except share data)
Common Stock
Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
Precigen
Shareholders'
Equity Noncontrolling
Interests Total
Equity
Shares Amount
Balances at December 31, 2017 122,087,040 $ — $ 1,397,005 $ ( 15,554 ) $ ( 847,820 ) $ 533,631 $ 12,914 $ 546,545
Cumulative effect of adoption of ASC 606 — — — ( 104 ) 26,611 26,507 — 26,507
Stock-based compensation expense — — 36,174 — — 36,174 122 36,296
Shares issued upon vesting of restricted stock units and for exercises of stock options and warrants 70,159 — 297 — — 297 2,039 2,336
Shares issued as payment for services 909,980 — 10,695 — — 10,695 — 10,695
Shares and warrants issued in public offerings, net of issuance costs 6,900,000 — 82,374 — — 82,374 5,616 87,990
Equity component of convertible debt, net of issuance costs and deferred taxes — — 36,868 — — 36,868 — 36,868
Shares issued pursuant to share lending agreement 7,479,431 — — — — — — —
Shares issued for reacquired in-process research and development 22,573,856 — 159,323 — — 159,323 — 159,323
Adjustments for noncontrolling interests — — ( 724 ) — — ( 724 ) 724 —
Net loss — — — — ( 509,336 ) ( 509,336 ) ( 5,370 ) ( 514,706 )
Other comprehensive loss — — — ( 12,954 ) — ( 12,954 ) ( 178 ) ( 13,132 )
Balances at December 31, 2018 160,020,466 $ — $ 1,722,012 $ ( 28,612 ) $ ( 1,330,545 ) $ 362,855 $ 15,867 $ 378,722
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Consolidated Statements of Shareholders' and Total Equity
Years Ended December 31, 2020, 2019 and 2018
(Amounts in thousands, except share data)
Common Stock
Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
Precigen
Shareholders'
Equity Noncontrolling
Interests Total
Equity
Shares Amount
Balances at December 31, 2018 160,020,466 $ — $ 1,722,012 $ ( 28,612 ) $ ( 1,330,545 ) $ 362,855 $ 15,867 $ 378,722
Stock-based compensation expense — — 18,881 — — 18,881 69 18,950
Shares issued upon vesting of restricted stock units and for exercises of stock options and warrants 1,028,144 — 63 — — 63 250 313
Shares issued for accrued compensation 150,908 — 1,102 — — 1,102 — 1,102
Shares issued as payment for services 2,075,362 — 10,446 — — 10,446 — 10,446
Shares and warrants issued in public offerings, net of issuance costs — — — — — — 6,611 6,611
Adjustments for noncontrolling interests — — ( 456 ) — — ( 456 ) 456 —
Deconsolidation of subsidiary — — — — — — ( 21,672 ) ( 21,672 )
Net loss — — — — ( 322,324 ) ( 322,324 ) ( 1,592 ) ( 323,916 )
Other comprehensive income — — — 1,144 — 1,144 11 1,155
Balances at December 31, 2019 163,274,880 $ — $ 1,752,048 $ ( 27,468 ) $ ( 1,652,869 ) $ 71,711 $ — $ 71,711
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Consolidated Statements of Shareholders' and Total Equity
Years Ended December 31, 2020, 2019 and 2018
(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, 2019 163,274,880 $ — $ 1,752,048 $ ( 27,468 ) $ ( 1,652,869 ) $ 71,711
Stock-based compensation expense — — 18,366 — — 18,366
Shares issued upon vesting of restricted stock units and for exercises of stock options 877,249 — 117 — — 117
Shares issued for accrued compensation 1,955,405 — 5,100 — — 5,100
Shares issued as payment for services 413,911 — 1,006 — — 1,006
Shares issued in private placement 5,972,696 — 35,000 — — 35,000
Shares issued upon conversion of long-term debt 13,051,802 — 56,827 — — 56,827
Shares issued in conjunction with settlement agreement 2,117,264 — 18,103 — — 18,103
Net loss — — — — ( 170,521 ) ( 170,521 )
Release of cumulative translation adjustment to loss from discontinued operations — — — 26,957 — 26,957
Other comprehensive income — — — 4,508 — 4,508
Balances at December 31, 2020 187,663,207 $ — $ 1,886,567 $ 3,997 $ ( 1,823,390 ) $ 67,174
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2020, 2019 and 2018
(Amounts in thousands) 2020 2019 2018
Cash flows from operating activities
Net loss $ ( 170,521 ) $ ( 323,916 ) $ ( 514,706 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 17,516 24,896 33,112
Loss on abandonment and disposals of assets, net 4,442 3,071 20,928
Impairment of goodwill 9,635 87,862 —
Impairment of other noncurrent assets 13,326 32,627 60,504
Gain on sale of discontinued operations ( 672 ) — —
Loss on release of cumulative foreign currency translation adjustments to loss from discontinued operations 26,957 — —
Reacquisition of in-process research and development — — 236,748
Loss on settlement agreement 11,436 — —
Unrealized and realized (appreciation) depreciation on equity securities and preferred stock, net 106 ( 7,833 ) 30,200
Noncash dividend income — ( 48 ) ( 14,841 )
Amortization of discounts on investments, net ( 699 ) ( 1,005 ) ( 771 )
Equity in net loss of affiliates 1,176 6,730 11,608
Stock-based compensation expense 18,366 18,950 36,296
Shares issued as payment for services 1,006 10,446 10,695
Provision for credit losses 899 3,242 1,779
Accretion of debt discount and amortization of deferred financing costs 10,587 9,459 4,378
Deferred income taxes ( 156 ) ( 3,674 ) ( 21,278 )
Other noncash items 226 837 1,093
Changes in operating assets and liabilities:
Receivables:
Trade 2,214 ( 262 ) ( 2,698 )
Related parties 258 967 11,003
Other 1,853 ( 656 ) ( 542 )
Inventory 2,511 4,100 ( 478 )
Prepaid expenses and other ( 812 ) ( 2,262 ) 1,006
Other assets ( 142 ) 333 652
Accounts payable ( 1,097 ) ( 5,349 ) 4,680
Accrued compensation and benefits ( 789 ) 5,186 4,385
Other accrued liabilities ( 2,682 ) ( 5,516 ) 356
Deferred revenue ( 21,045 ) 7,423 ( 38,578 )
Lease liabilities ( 887 ) ( 995 ) —
Related party payables ( 33 ) 45 ( 52 )
Other long-term liabilities — ( 585 ) 281
Net cash used in operating activities ( 77,021 ) ( 135,927 ) ( 124,240 )
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2020, 2019 and 2018
(Amounts in thousands) 2020 2019 2018
Cash flows from investing activities
Purchases of investments ( 171,360 ) ( 55,073 ) ( 178,681 )
Sales and maturities of investments 133,000 166,495 65,975
Proceeds from sales of equity securities — 23,456 217
Acquisitions of businesses, net of cash received — — ( 920 )
Investments in affiliates — ( 3,713 ) ( 16,582 )
Decrease in cash from deconsolidation of subsidiary — ( 7,244 ) —
Return of investment in affiliate — 125 2,598
Cash received in asset acquisitions — — 15,500
Purchases of property, plant and equipment ( 7,527 ) ( 37,883 ) ( 41,587 )
Proceeds from sale of assets 6,484 688 2,267
Proceeds from sale of discontinued operations, net of cash sold 64,240 — —
Proceeds from repayment of notes receivable 2,942 — —
Net cash provided by (used in) investing activities 27,779 86,851 ( 151,213 )
Cash flows from financing activities
Proceeds from issuance of shares in a private placement 35,000 — —
Proceeds from issuance of shares and warrants in public offerings, net of issuance costs — 6,611 87,990
Advances from lines of credit 10,005 11,757 4,561
Repayments of advances from lines of credit ( 11,927 ) ( 10,301 ) ( 4,328 )
Proceeds from long-term debt, net of issuance costs — 376 219,859
Payments of long-term debt ( 490 ) ( 618 ) ( 623 )
Proceeds from stock option and warrant exercises 117 313 2,336
Net cash provided by financing activities 32,705 8,138 309,795
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 353 ( 810 ) 295
Net increase (decrease) in cash, cash equivalents, and restricted cash ( 16,184 ) ( 41,748 ) 34,637
Cash, cash equivalents, and restricted cash
Beginning of year 68,434 110,182 75,545
End of year $ 52,250 $ 68,434 $ 110,182
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2020, 2019 and 2018
(Amounts in thousands) 2020 2019 2018
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 7,202 $ 3,751 $ 3,868
Cash paid during the period for income taxes 48 50 216
Significant noncash activities
Fair value of stock received as consideration for collaboration agreements $ — $ 4,530 $ —
Fair value of stock issued for reacquired in-process research and development — — 159,323
Fair value of stock issued upon conversion of long-term debt 56,827 — —
Fair value of stock issued in conjunction with settlement agreement 18,103 — —
Long-term debt issued to a related party in an asset acquisition — — 30,000
Accrued compensation paid in equity awards 5,100 1,102 —
Purchases of property and equipment included in accounts payable and other accrued liabilities 277 694 2,267
Purchases of equipment financed through debt — — 234
Sales of assets included in receivables 4,227 — —
The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of December 31, 2020 and 2019 as shown above:
2020 2019
Cash and cash equivalents $ 51,792 $ 65,793
Cash and cash equivalents included in current assets held for sale or abandonment — 2,223
Restricted cash included in other assets 458 418
Cash, cash equivalents, and restricted cash $ 52,250 $ 68,434
The accompanying notes are an integral part of these consolidated financial statements.
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Precigen, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
1. Organization and Basis of Presentation
Precigen, Inc. ("Precigen"), a Virginia corporation, is a synthetic biology company with an increasing 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.
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.
Trans Ova Genetics, L.C. ("Trans Ova") and Progentus, L.C. ("Progentus"), providers of reproductive technologies, including services and products sold to cattle breeders and other producers, are wholly owned subsidiaries with primary operations in California, Iowa, Maryland, Missouri, Texas, Washington, and Wisconsin.
Effective October 1, 2019, Precigen transferred substantially all of its proprietary methane bioconversion platform 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 has substantially completed the wind down by December 31, 2020. With the exception of certain assets and obligations with which the Company has 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.
Through April 8, 2019, Precigen consolidated AquaBounty Technologies, Inc. ("AquaBounty"), a company focused on improving productivity in commercial aquaculture and whose common stock is listed on the Nasdaq Stock Market. On April 9, 2019, AquaBounty completed an underwritten public offering that resulted in Precigen no longer having the contractual right to control AquaBounty's board of directors, and accordingly, Precigen deconsolidated AquaBounty resulting in a loss on deconsolidation of $ 2,648 , which is included in other income, net, on the accompanying consolidated statement of operations for the year ended December 31, 2019. After deconsolidating the entity in April 2019, Precigen held its AquaBounty equity securities, which was an equity method investment that the Company accounted for using the fair value option, until October 2019 when the independent members of the Company's board of directors, with the recommendation of the audit committee and an independent special committee of the Board, unanimously approved the sale of the Company's common shares held in AquaBounty to an affiliate of Third Security, LLC ("Third Security"), a related party, for $ 21,587 , resulting in the recognition of a realized gain of $ 7,348 which is included in unrealized and realized appreciation in fair value of equity securities and preferred stock, net, on the accompanying consolidated statement of operations for the year ended December 31, 2019.
On January 31, 2020, Precigen completed the sale of the majority of its non-healthcare assets and operations to an affiliate of Third Security, which are presented as discontinued operations for all periods presented. See Notes 3 and 14 for further discussion.
Precigen and its consolidated subsidiaries are hereinafter referred to as the "Company."
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Liquidity and Going Concern
Management believes that existing liquid assets as of December 31, 2020, along with the net proceeds from the underwritten public offering in January 2021 (Note 23), will allow the Company to continue its operations for at least a year from the issuance date of these consolidated financial statements. These consolidated financial statements are presented in United States dollars and are prepared under accounting principles generally accepted in the United States of America ("U.S. GAAP"). The Company is 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 and its collaborators' product candidates. Additionally, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the year ended December 31, 2020, the Company incurred a net loss of $ 170,521 and, as of December 31, 2020, had an accumulated deficit of $ 1,823,390 . Management expects operating losses and negative cash flows 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 the absence of a significant source of recurring revenue, the Company's long-term success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, reduce uses of cash for operating and investing activities for non-healthcare functions, obtain regulatory approval of its product candidates, successfully commercialize its product candidates, generate revenue, meet its obligations and, ultimately, attain profitable operations.
Upon the original issuance of the Company's financial statements for the year ended December 31, 2018, the Company's resources of cash, cash equivalents, and short-term investments were not sufficient to fund the Company's planned operations through one year after the date the 2018 consolidated financial statements were originally issued and accordingly, there was substantial doubt about the Company's ability to continue as a going concern. The analysis used to determine the Company's ability to continue as a going concern did not include cash sources outside of the Company's direct control that management expected to be available within the twelve months following the original issuance of the 2018 consolidated financial statements.
At the time of the original issuance of the 2018 consolidated financial statements, the Company could not ensure that it would be able to obtain sufficient additional funding through monetizing certain of its existing assets, entering into new license and collaboration agreements, issuing additional equity or debt instruments or any other means, and if it was able to do so, they may not be on satisfactory terms. The Company's ability to raise additional capital in the equity and debt markets, should the Company choose to do so, was dependent on a number of factors, including, but not limited to, the market demand for the Company's common stock, which itself is subject to a number of business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that were favorable to the Company. Should the Company not have been able to secure additional funding through these means, the Company could have had to engage in any or all of the following activities: (i) shift internal investments from subsidiaries and platforms whose potential for value creation was longer-term to near-term opportunities; (ii) sell certain of its operating subsidiaries to third parties; (iii) reduce operating expenditures for third-party contractors, including consultants, professional advisors and other vendors; and (iv) reduce or delay capital expenditures, including non-essential facility expansions, lab equipment, and information technology projects. The 2018 consolidated financial statements were prepared on a going concern basis and did not include any adjustments to the amounts and classification of assets and liabilities that may have been necessary in the event the Company could no longer continue as a going concern.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements reflect the operations of Precigen and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Risks and Uncertainties
COVID-19 has had and continues to have an extensive impact on the global health and economic environments.
Commencing in the second half of March 2020, the Company's healthcare business began to experience delays to certain of its clinical trials as a result of COVID-19. For example, starting in March 2020, ActoBio temporarily suspended the last cohort of the Phase 1b/2a clinical trial for AG019 as a proactive measure to protect the welfare and safety of patients, caregivers, clinical site staff, its employees, and contractors. The temporary suspension of the AG019 trial was voluntary and was not related to any patient safety issues in the study. The voluntary suspension of the AG019 trial was lifted in June 2020, and the study is recruiting patients again. Additionally, from April to May 2020, enrollment of new patients in the Company's PRGN-3005
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Phase 1 trial was temporarily suspended due to a mandated hold on certain early and late-stage clinical trials at the Fred Hutchinson Cancer Research Center in Seattle that was instituted in light of the COVID-19 pandemic. The temporary suspension of the PRGN-3005 trial was not related to safety issues in the studies, and in May 2020, recruitment resumed in the PRGN-3005 Phase 1 trial. Furthermore, uncertainty regarding the duration and severity of the ongoing pandemic 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 these and other aspects of its business, including Trans Ova and Exemplar. 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.
Revenue Recognition
The Company recognizes revenue when its customer obtains control of the promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"), the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the promises and distinct performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligations.
Collaboration and licensing revenues
The Company has historically generated collaboration and licensing revenues through agreements with collaborators (known as exclusive channel collaborations or "ECCs") and licensing agreements whereby the collaborators or the licensee obtain exclusive access to the Company's proprietary technologies for use in the research, development and commercialization of products and/or treatments in a contractually specified field of use. Generally, the terms of these agreements provide that the Company receives some or all of the following: (i) upfront payments upon consummation of the agreement; (ii) reimbursements for costs incurred by the Company for research and development and/or manufacturing efforts related to specific applications provided for in the agreement; (iii) milestone payments upon the achievement of specified development, regulatory, and commercial activities; and (iv) royalties on sales of products arising from the collaboration or licensing agreement. The agreement typically continues in perpetuity unless terminated and each of the Company's collaborators retain a right to terminate the agreement upon providing the Company written notice a certain period of time prior to such termination, generally 90 days.
The Company's collaboration and licensing agreements typically contain multiple promises, including technology licenses, research and development services and, in certain cases, manufacturing services. The Company determines whether each of the promises is a distinct performance obligation. As the nature of the promises in the Company's collaboration and licensing agreements are highly integrated and interrelated, the Company typically combines most of its promises into a single performance obligation. Because the Company is performing research and development services during early-stage development, the services are integral to the utilization of the technology license. Therefore, the Company has determined that the technology license and research and development services are typically inseparable from each other during the performance period of its collaboration and licensing agreements. Options to acquire additional services are considered to determine if they constitute material rights. Contingent manufacturing services that may be provided under certain of the Company's agreements are considered to be a separate future contract and not part of the current collaboration or licensing agreement.
At contract inception, the Company determines the transaction price, including fixed consideration and any estimated amounts of variable consideration. The upfront payment received upon consummation of the agreement is fixed and nonrefundable. Variable consideration is subject to a constraint and amounts are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration may include reimbursements for costs incurred by the Company for research and development efforts; milestone payments upon the achievement of certain development, regulatory, and commercial activities; and royalties on sales of products arising from the collaboration or licensing agreement. The Company determines the initial transaction price and excludes variable consideration that is otherwise constrained pursuant to the guidance in ASC 606.
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The transaction price is allocated to the performance obligations in the agreement based on the standalone selling price of each performance obligation. The Company typically groups the promises in its collaboration and licensing agreements into one performance obligation so the entire transaction price relates to this single performance obligation. The technology license included in the single performance obligation is considered a functional license. However, it is typically combined into a single performance obligation as the Company provides interrelated research and development services along with other obligations over an estimated period of performance. The Company utilizes judgment to determine the most appropriate method to measure its progress of performance under the agreement, primarily based on inputs necessary to fulfill the performance obligation. The Company evaluates its measure of progress to recognize revenue each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The Company's measure of performance and revenue recognition involves significant judgment and assumptions, including, but not limited to, estimated costs and timelines to complete its performance obligations. The Company evaluates modifications and amendments to its contracts to determine whether any changes should be accounted for prospectively or on a cumulative catch-up basis.
Payments received for cost reimbursements for research and development efforts are recognized as revenue as 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 the milestone 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 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.
As the Company receives upfront payments in its collaboration and licensing agreements, it evaluates whether any significant financing components exist in its collaboration and licensing agreements. Based on the nature of its collaboration and licensing agreements, there are no significant financing components as the purpose of the upfront payment is not to provide financing. The purpose is to provide the collaborator with assurance that the Company will complete its obligations under the contract or to secure the right to a specific product or service at the collaborator's discretion. In addition, the variable payments generally align with the timing of performance or the timing of the consideration varies on the basis of the occurrence or nonoccurrence of a future event that is not substantially within the control of the collaborator or the Company.
From time to time, the Company and certain collaborators may cancel their agreements, relieving the Company of any further performance obligations under the agreement. Upon such cancellation or when the Company has determined no further performance obligations are required of the Company under an agreement, the Company recognizes any remaining deferred revenue as revenue.
Product and service revenues
The Company's product and service revenues are generated primarily through Trans Ova and include sales of advanced reproductive technologies, including the Company's bovine embryo transfer and in vitro fertilization processes and from genetic preservation and sexed semen processes and applications of such processes to other livestock, as well as sales of livestock and embryos produced using these processes and used in production. Exemplar also generates product and service revenues through the development and sale of genetically engineered miniature swine models. As each promised product or service is distinct, the Company recognizes the transaction price as revenue at a point in time when control of the promised product is transferred to the customer or when the promised service is rendered. Payment terms are typically due within 30 days of invoicing, which occurs prior to or when revenue is recognized.
Research and Development
The Company considers that regulatory requirements inherent in the research and development of new products preclude it from capitalizing such costs. Research and development expenses include salaries and related costs of research and development personnel, including stock-based compensation expense, costs to acquire or reacquire technology rights, contract research organizations and consultants, facilities, materials and supplies associated with research and development projects as well as various laboratory studies. Costs incurred in conjunction with collaboration and licensing arrangements are included in
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research and development. Indirect research and development costs include depreciation, amortization, and other indirect overhead expenses.
The Company has research and development arrangements with third parties that include upfront and milestone payments. As of December 31, 2020 and 2019, the Company had research and development commitments with third parties that had not yet been incurred totaling $ 12,054 and $ 14,664 , respectively. The commitments are generally cancellable by the Company at any time upon written notice.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or less at the date of purchase are considered to be cash equivalents. Cash balances at a limited number of banks may periodically exceed insurable amounts. The Company believes that it mitigates its risk by investing in or through major financial institutions. Recoverability of investments is dependent upon the performance of the issuer. As of December 31, 2020 and 2019, the Company had cash equivalent investments in highly liquid money market accounts at major financial institutions of $ 30,164 and $ 47,238 , respectively.
Short-term Investments
As of December 31, 2020, short-term investments include United States government debt securities and certificates of deposit. The Company determines the appropriate classification as short-term or long-term at the time of purchase based on original maturities and management's reasonable expectation of sales and redemption. The Company reevaluates such classification at each balance sheet date. The Company's written investment policy requires investments to be explicitly rated by two of Standard & Poor's, Moody's or Fitch and to have a minimum rating of A1, P1 or F-1, respectively, from those agencies. In addition, the investment policy limits the amount of credit exposure to any one issuer.
Equity Securities
The Company historically held equity securities of private and publicly traded companies, including investments received and/or purchased from certain collaborators. The Company evaluated whether to elect the fair value option on an individual investment basis. The Company elected the fair value option to account for its equity securities held in publicly traded companies. These equity securities were recorded at fair value at each reporting date and were subject to market price volatility. Unrealized gains and losses resulting from fair value adjustments were reported in the consolidated statements of operations. The Company accounts for its investments in private companies using either the equity method, as discussed below, or the measurement alternative method for equity securities without readily determinable fair values, which represented cost and any adjustments for impairment or observable price changes in certain transactions. See Notes 3 and 18 for additional discussion of certain equity securities.
For equity securities received pursuant to a collaboration agreement, the Company recorded the fair value of securities received on the date the collaboration was consummated or the milestone was achieved using the fair value of the collaborator's security on that date, assuming the transfer of consideration was considered perfunctory. If the transfer of the consideration was not considered perfunctory, the Company considered the specific facts and circumstances to determine the appropriate date on which to evaluate fair value. The Company also evaluated whether any discounts for trading restrictions or other basis for lack of marketability should be applied to the fair value of the securities at inception of the collaboration. In the event the Company concluded that a discount should be applied to securities accounted for under the fair value option, the fair value of the securities was adjusted at inception of the collaboration and re-evaluated at each reporting period thereafter.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset and liability. As a basis for considering such assumptions, the Company uses a three-tier fair value hierarchy that prioritizes the inputs used in its fair value measurements. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: Quoted prices in active markets for identical assets and liabilities;
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Level 2: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly; and
Level 3: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available.
Concentrations of Risk
Due to the Company's mix of fixed and variable rate securities holdings, the Company's investment portfolio is susceptible to changes in interest rates. As of December 31, 2020, gross unrealized losses on the Company's short-term investments were not material. From time to time, the Company may liquidate some or all of its investments to fund operational needs or other activities, such as capital expenditures or business acquisitions, or distribute its equity securities to shareholders as a stock dividend. Depending on which investments the Company liquidates to fund these activities, the Company could recognize a portion, or all, of the gross unrealized losses.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade and related party receivables. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. The Company performs ongoing credit evaluations of its customers but generally does not require collateral to support accounts receivable.
Equity Method Investments
The Company accounts for its investments in each of its joint ventures ("JVs") and in start-up entities backed by the Harvest Intrexon Enterprise Fund I, LP ("Harvest"), all of which are related parties, using the equity method of accounting based upon relative ownership interest. The Company's investments in these entities are included in investments in affiliates in the accompanying consolidated balance sheets. See additional discussion related to certain of the Harvest start-up entities in Notes 4 and 17 and to certain of the Company's JVs in Note 5.
Variable Interest Entities
The Company identifies entities that (i) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support or (ii) in which the equity investors lack an essential characteristic of a controlling financial interest as variable interest entities ("VIEs"). The Company performs an initial and on-going evaluation of the entities with which the Company has variable interests to determine if any of these entities are VIEs. If an entity is identified as a VIE, the Company performs an assessment to determine whether the Company has both (i) the power to direct activities that most significantly impact the VIE's economic performance and (ii) have the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE. If both of these criteria are satisfied, the Company is identified as the primary beneficiary of the VIE.
As of December 31, 2020 and 2019, the Company determined that certain of its collaborators and JVs were VIEs. It also determined Harvest was a VIE as of December 31, 2019. The Company was not the primary beneficiary for these entities since it did not have the power to direct the activities that most significantly impact the economic performance of the VIEs. The Company's aggregate investment balances of these VIEs as of December 31, 2020 and 2019, were $ 0 and $ 1,461 , respectively, which represents the Company's maximum risk of loss related to the identified VIEs. See Note 5 for discussion of the Company's future funding commitments for its significant JVs.
Accounts Receivable
Effective January 1, 2020, the Company applies FASB Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including accounts receivable. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance.
The Company is exposed to credit losses primarily through sales of products and services by Trans Ova and Exemplar in the normal course of business. The Company's expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customers' accounts receivables. The Company's monitoring activities include timely account reconciliation, routine follow-up
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on past due accounts, and consideration of customers' financial condition, as well as macroeconomic conditions. Past due status is determined based upon contractual terms. Balances are written off at the point when collection attempts have been exhausted.
Estimates are used to determine the loss allowance, which is based on assessment of anticipated payment and other historical, current, and future information that is reasonably available.
The following table shows the activity in the allowance for credit losses for the years ended December 31, 2020, 2019, and 2018:
2020 2019 2018
Beginning balance $ 7,513 $ 4,991 $ 4,631
Charged to operating expenses 899 3,384 1,627
Write offs of accounts receivable, net of recoveries ( 2,078 ) ( 862 ) ( 1,267 )
Ending balance $ 6,334 $ 7,513 $ 4,991
Inventory
The Company's inventory primarily includes adult female cows that are used in Trans Ova's production processes and are recorded at acquisition cost using the first-in, first-out method or net realizable value, whichever is lower. Work-in-process inventory includes allocations of production costs and facility costs for products currently in production and is recorded at the lower of cost or net realizable value. Significant declines in the price of cows could result in unfavorable adjustments to inventory balances.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Major additions or betterments are capitalized and repairs and maintenance are expensed as incurred. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of these assets from continuing operations are as follows:
Years
Land improvements 4 – 15
Buildings and building improvements 3 – 23
Furniture and fixtures 1 – 7
Equipment 1 – 9
Breeding stock 2 – 4
Computer hardware and software 1 – 7
Leasehold improvements are amortized over the shorter of the useful life of the asset or the applicable lease term, generally one to fourteen years .
Operating Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included as right-of-use assets ("ROU Assets") and lease liabilities on the consolidated balance sheets. The Company has elected not to recognize ROU Assets or lease liabilities for leases with lease terms of one year or less.
Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The initial measurement of the ROU Asset also includes any lease payments made, adjusted for lease incentives. For leases that contain fixed non-lease payments, the Company accounts for the lease and non-lease components as a single lease component. Variable lease payments, which primarily include payments for non-lease components such as maintenance costs, are excluded from the ROU Assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As the Company's operating leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate at the lease commencement date, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease, in determining the present value of future payments. The lease term for all of the Company's leases includes the noncancelable period of the lease plus any additional periods covered by options that the Company is reasonably certain to exercise, either to extend or to not terminate the lease. Lease expense is recognized on a straight-line basis over the lease term.
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Goodwill
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually. The Company may elect to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the goodwill impairment test. If this is the case, the quantitative goodwill impairment test is required. If it is more-likely-than-not that the fair value of a reporting unit is greater than the carrying amount, the quantitative goodwill impairment test is not required.
If the quantitative goodwill impairment test is performed, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, the entity must record the impairment charge for the excess carrying amount, which is limited to the amount of goodwill allocated to the reporting unit. If the fair value of the reporting unit exceeds its carrying amount, no goodwill impairment charge is necessary.
The Company performs its annual impairment review of goodwill in the fourth quarter, or sooner if a triggering event occurs prior to the annual impairment review.
The fair value of the reporting units are primarily determined based on the income approach. The income approach is a valuation technique in which fair value is based from forecasted future cash flows, discounted at the appropriate rate of return commensurate with the risk as well as current rates of return for equity and debt capital as of the valuation date. The forecast used in the Company's estimation of fair value was developed by management based on historical operating results, incorporating adjustments to reflect management's planned changes in operations and market considerations. The discount rate utilizes a risk adjusted weighted average cost of capital. To assess the reasonableness of the calculated reporting unit fair values, the Company compares the sum of the reporting units' fair values to its market capitalization (per share stock price times the number of shares outstanding) and calculates an implied control premium (the excess of the sum of the reporting units' fair values over the market capitalization) and then assesses the reasonableness of its implied control premium.
See Notes 3 and 11 for additional discussion regarding goodwill impairment charges recorded in the years ended December 31, 2020 and 2019.
Intangible Assets
Intangible assets subject to amortization consist of patents, developed technologies and know-how; customer relationships; and trademarks acquired as a result of mergers and acquisitions. These intangible assets are subject to amortization, were recorded at fair value at the date of acquisition, and are stated net of accumulated amortization.
The Company amortizes long-lived intangible assets to reflect the pattern in which the economic benefits of the intangible asset are expected to be realized. The intangible assets are amortized over their estimated useful lives, ranging from three to eighteen years for the patents, developed technologies, and know-how; customer relationships; and trademarks.
Impairment of Long-Lived Assets
Long-lived assets to be held and used, including property, plant and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable.
See Notes 3 and 10 for additional discussion of impairment of long-lived assets for the three years ended December 31, 2020.
Convertible Notes
The Company allocated the proceeds received in July 2018 from the issuance of Precigen's 3.50 % convertible senior notes due 2023 (the "Convertible Notes") between long-term debt (liability component) and additional paid-in capital (equity component) within the consolidated balance sheet. The original value assigned to long-term debt was the estimated fair value as of the issuance date of a similar debt instrument without a conversion option. The original value assigned to additional paid-in capital represented the value of the conversion option and was calculated by deducting the fair value of the long-term debt from the principal amount of the Convertible Notes and is not remeasured as long as it continues to meet the requirements for equity
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classification. The original value of the conversion option will accrete to the carrying value of the long-term debt and result in additional noncash interest expense over the expected life of the Convertible Notes using the effective interest method.
Debt issuance costs related to the Convertible Notes were also allocated between long-term debt and additional paid-in capital based on the original value assigned to each. Debt issuance costs allocated to long-term debt reduced the original carrying value and accrete to the carrying value of the long-term debt and result in additional noncash interest expense over the expected life of the Convertible Notes using the effective interest method. Debt issuance costs allocated to additional paid-in capital were recorded as reduction of the original value assigned to the conversion option.
See Note 12 for the further discussion of the Convertible Notes.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries, where the local currency is the functional currency, are translated from their respective functional currencies into United States dollars at the exchange rates in effect at the balance sheet date, with resulting foreign currency translation adjustments recorded in the consolidated statement of comprehensive loss. Revenue and expense amounts are translated at average rates during the period.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to both differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of the change. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company identifies any uncertain income tax positions and recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest, if any, related to unrecognized tax benefits as a component of interest expense. Penalties, if any, are recorded in selling, general and administrative expenses.
The Company accounts for the minimum tax on global intangible low-taxed income ("GILTI") as a period charge in the period in which the tax arises. There was no impact from GILTI to the accompanying consolidated financial statements.
Share-Based Payments
Precigen uses the Black-Scholes option pricing model to estimate the grant-date fair value of all stock options. The Black-Scholes option pricing model requires the use of assumptions for estimated expected volatility, estimated expected term of stock options, risk-free rate, estimated expected dividend yield, and the fair value of the underlying common stock at the date of grant. Through 2019, since Precigen did not have sufficient history to estimate the expected volatility of its common stock price, expected volatility was based on a blended approach that utilized the volatility of Precigen's common stock and the volatility of peer public entities that were similar in size and industry. Beginning in 2020, for stock options with an expected term where there is sufficient history available, expected volatility is based on the volatility of Precigen's common stock. For any stock options where sufficient history is not available for the expected term, expected volatility is based on the blended approach discussed above. Precigen estimates the expected term of options based on previous history of exercises unless certain terms of the stock option require a different expected term that more appropriately reflects the estimated life of the stock option. The risk-free rate is based on the United States Treasury yield curve in effect at the time of grant for the expected term of the option. The expected dividend yield is 0 % as Precigen does not expect to declare cash dividends in the near future. The fair value of the underlying common stock is determined based on the quoted market price on the Nasdaq Global Select Market ("Nasdaq"). Forfeitures are recorded when incurred. The assumptions used in the Black-Scholes option pricing model for the years ended December 31, 2020, 2019 and 2018 are set forth in the table below:
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2020 2019 2018
Valuation assumptions
Expected dividend yield 0 % 0 % 0 %
Expected volatility 59 %– 90 %
58 %– 64 %
55 %– 59 %
Expected term (years) 6.00 – 10.00
6.25 6.25
Risk-free interest rate 0.36 %– 1.80 %
1.53 %– 2.58 %
2.33 %– 3.06 %
Grant date fair value for the Company's restricted stock units ("RSUs") is based on the fair value of the underlying common stock as determined based on the quoted market price on the Nasdaq on the date of grant.
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 and, therefore, basic and diluted net loss per share were the same for all periods presented.
Segment Information
The Company's chief operating decision maker ("CODM") regularly reviews disaggregated financial information for various operating segments. As of December 31, 2020, the Company's reportable segments were (i) PGEN Therapeutics; (ii) ActoBio; (iii) Trans Ova; and (iv) the Human Biotherapeutics division, which is an operating division of Precigen. All of Precigen's consolidated subsidiaries and operating divisions that did not meet the quantitative thresholds to report separately are combined and reported in a single category, All Other. See Note 1 for a description of PGEN Therapeutics, ActoBio, and Trans Ova. See Note 20 for a description of the Human Biotherapeutics division. 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, corporate communication, and investor relations functions. Corporate expenses exclude interest expense, depreciation and amortization, 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 as well as dividend income. See Note 20 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.
Recently Adopted Accounting Pronouncements
In October 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 ("ASU 2018-18"). The provisions of ASU 2018-18 clarify when certain transactions between collaborative arrangement participants should be accounted for under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"), and incorporates unit-of-account guidance consistent with ASC 606 to aid in this determination. The Company adopted this standard effective January 1, 2020, and there was no impact to the accompanying consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("ASU 2018-17"). The provisions of ASU 2018-17 modify the guidance under ASC Topic 810 related to the evaluation of indirect interests held through related parties under common control when determining whether fees paid to decision makers and service providers are variable interests. Indirect interests held through related parties that are under common control are no longer considered to be the equivalent of direct interests in their entirety and instead should be considered on a proportional basis. This guidance more closely aligns with accounting of how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a
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VIE. The Company adopted this standard effective January 1, 2020, and there was no impact to the accompanying consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). The provisions of ASU 2018-15 clarify the accounting for implementation costs of a hosting arrangement that is a service contract. The new standard requires an entity (customer) in a hosting arrangement that is a service contract to follow existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Capitalized implementation costs of a hosting arrangement that is a service contract should be amortized over the term of the hosting arrangement, which might extend beyond the noncancelable period if there are options to extend or terminate. ASU 2018-15 also specifies the financial statement presentation of capitalized implementation costs and related amortization, in addition to required disclosures for material capitalized implementation costs related to hosting arrangements that are service contracts. The Company adopted this standard effective January 1, 2020, on a prospective basis, and there was no material impact to the accompanying consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements ("ASU 2018-13"). The provisions of ASU 2018-13 modify the disclosures related to recurring and nonrecurring fair value measurements. Disclosures related to the transfer of assets between Level 1 and Level 2 hierarchies have been eliminated and various additional disclosures related to Level 3 fair value measurements have been added, modified, or removed. The Company adopted this standard effective January 1, 2020, and there was no impact to the accompanying consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, which modifies the impairment model for receivables to utilize an expected loss methodology in place of the previous incurred loss methodology, and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this standard effective January 1, 2020, and there was no material impact to the accompanying consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued 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" ) . The provisions of ASU 2020-06 simplify accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The amendments in ASU 2020-06 are effective for annual periods beginning after December 15, 2021. Early adoption is permitted but no earlier than annual periods beginning after December 15, 2020. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of the new standard on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The provisions of ASU 2019-12 are intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently evaluating the impact of the new standard on its consolidated financial statements.
3. Discontinued Operations
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 complete by December 31, 2020, with the final disposition of certain property and equipment
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and the facility operating lease occurring in January 2021. See Note 23 for further discussion of the facility operating lease. This discontinuation of operations represented the continuation of a strategic shift, that the Company commenced as part of the Transactions defined and discussed below, to becoming a primarily healthcare company advancing technologies and products that address complex healthcare challenges. The assets, liabilities, and expenses related to the discontinued operations of MBP Titan are reclassified and presented as discontinued operations in the accompanying consolidated financial statements for all periods.
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 and Intrexon Energy Partners II, including the associated deferred revenue remaining under each collaboration agreement (Notes 5 and 6), 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 consolidated financial statements for all periods presented as a result of the Company's continuing involvement.
The carrying values of the major classes of assets and liabilities included in assets and liabilities held for abandonment for MBP Titan as of December 31, 2020 and 2019, are as follows:
December 31,
2020 2019
Assets
Property, plant and equipment, net $ 586 $ 17,017
Goodwill — 9,635
Right-of-use assets 9,131 13,425
Other assets 136 636
Total assets held for sale or abandonment $ 9,853 $ 40,713
Liabilities
Lease liabilities, current $ 1,890 $ 1,548
Other current liabilities 619 1,657
Lease liabilities, net of current portion 11,538 13,730
Total liabilities held for sale or abandonment $ 14,047 $ 16,935
The following table presents the financial results of discontinued operations of MBP Titan:
Year Ended December 31,
2020 2019 2018
Operating expenses (1) $ 40,692 $ 37,423 $ 33,830
Operating loss ( 40,692 ) ( 37,423 ) ( 33,830 )
Loss before income taxes ( 40,692 ) ( 37,423 ) ( 33,830 )
Loss from discontinued operations $ ( 40,692 ) $ ( 37,423 ) $ ( 33,830 )
(1) Includes a goodwill impairment charge of $ 9,635 and an impairment charge on property, plant and equipment and ROU Assets of $ 12,406 recorded in 2020 in conjunction with the suspension of MBP Titan's operations discussed above.
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The following table presents the significant non-cash items and purchases of property, plant and equipment for the discontinued operations for MBP Titan that are included in the accompanying consolidated statements of cash flows.
Year Ended December 31,
2020 2019 2018
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization $ 2,474 $ 3,647 $ 3,493
Impairment of goodwill 9,635 — —
Impairment of other noncurrent assets 12,406 — —
Stock-based compensation expense ( 34 ) 1,345 1,870
Cash flows from investing activities
Purchases of property, plant and equipment ( 88 ) ( 2,114 ) ( 3,558 )
Transactions with TS Biotechnology Holdings, LLC and Darling Ingredients, Inc.
On January 1, 2020, the Company and TS Biotechnology Holdings, LLC ("TS Biotechnology"), a related party and an entity managed by Third Security, entered into a Stock and Asset Purchase Agreement pursuant to which the Company agreed to sell a majority of the Company's non-healthcare assets and operations to TS Biotechnology for $ 53,000 and certain contingent payment rights (the "TS Biotechnology Sale"). The TS Biotechnology Sale closed on January 31, 2020. The assets and operations sold in the TS Biotechnology Sale included the following wholly owned subsidiaries, as well as certain equity securities that were directly related to the subsidiaries sold:
• Intrexon Produce Holdings, Inc., the parent company of two companies focused on the development and sale of non-browning apples, Okanagan Specialty Fruits, Inc. and Fruit Orchard Holdings, Inc.;
• Intrexon UK Holdings, Inc., the parent company of Oxitec Limited and its subsidiaries, which focused on biological insect solutions;
• ILH Holdings, Inc., a company focused on the production of certain fine chemicals focused primarily on microbial production of therapeutic compounds; and
• Blue Marble AgBio LLC which was formed in January 2020 and included certain agriculture biotechnology assets and operations that were previously an operating division within Precigen.
Additionally, on January 2, 2020, the Company sold its equity interest in EnviroFlight, LLC ("EnviroFlight"), a JV with Darling Ingredients, Inc. ("Darling"), and related intellectual property rights to Darling for $ 12,200 (the "EnviroFlight Sale"). Unless referenced separately, the TS Biotechnology Sale and the EnviroFlight Sale are collectively referred to as the "Transactions".
The Transactions were approved by the Company's independent members of the board of directors in December 2019. The Transactions represented a strategic shift of the Company towards the Company becoming a primarily healthcare company advancing technologies and products that address complex healthcare challenges. The assets, liabilities, and operations related to the Transactions are reclassified and presented as discontinued operations in the accompanying consolidated financial statements for all periods. Immediately prior to the reclassification, the Company evaluated goodwill, long-lived assets, and the equity method investment included in the Transactions for impairment. The Company recorded an impairment charge of $ 79,396 , including $ 58,042 and $ 21,354 related to goodwill and other long-lived assets, respectively, at the Okanagan, Oxitec, Fine Chemicals, and AgBio reporting units. Additionally, the Company recorded a $ 10,283 impairment charge for the write down of the equity method investment and related intangible assets included in the EnviroFlight Sale. These impairment charges are included in loss from discontinued operations in the accompanying consolidated statement of operations for the year ended December, 31, 2019.
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Upon the closing of the TS Biotechnology Sale in January 2020, the cumulative foreign currency translation losses totaling $ 26,957 were released to earnings and included in loss from discontinued operations. See further discussion below.
The carrying values of the major classes of assets and liabilities included in assets and liabilities held for sale for the Transactions as of December 31, 2019 are as follows:
TS Biotechnology Sale EnviroFlight Sale Total
Assets
Cash and cash equivalents $ 2,223 $ — $ 2,223
Other current assets 9,698 — 9,698
Property, plant and equipment, net 51,975 — 51,975
Intangible assets, net 20,891 4,383 25,274
Investments in affiliates — 7,817 7,817
Right-of-use assets 13,622 — 13,622
Other noncurrent assets 212 — 212
Total assets held for sale $ 98,621 $ 12,200 $ 110,821
Liabilities
Deferred revenue, current (1) $ 8,723 $ — $ 8,723
Lease liabilities, current 2,459 — 2,459
Other current liabilities 3,058 41 3,099
Deferred revenue, net of current portion (2) 19,410 — 19,410
Lease liabilities, net of current portion 12,623 — 12,623
Other long-term liabilities 1,019 — 1,019
Total liabilities held for sale $ 47,292 $ 41 $ 47,333
(1) Includes deferred revenue, current, from related parties of $ 1,243 .
(2) Includes deferred revenue, net of current portion, from related parties of $ 6,836 .
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The following tables present the financial results of discontinued operations related to the Transactions:
Year Ended December 31, 2020
TS Biotechnology Sale EnviroFlight Sale Total
Revenues (1) $ 1,294 $ — $ 1,294
Operating expenses 896 — 896
Operating income 398 — 398
Gain on sale of discontinued operations 633 39 672
Loss on release of cumulative foreign currency translation adjustment ( 26,957 ) — ( 26,957 )
Other expense, net ( 129 ) — ( 129 )
Equity in net loss of affiliates — ( 38 ) ( 38 )
Income (loss) before income taxes ( 26,055 ) 1 ( 26,054 )
Income tax expense ( 2 ) — ( 2 )
Income (loss) from discontinued operations $ ( 26,057 ) $ 1 $ ( 26,056 )
(1) Includes revenues recognized from related parties of $ 436 .
Year Ended December 31, 2019
TS Biotechnology Sale EnviroFlight Sale Total
Revenues (1) $ 12,307 $ — $ 12,307
Operating expenses (2) 116,091 10,794 126,885
Operating loss ( 103,784 ) ( 10,794 ) ( 114,578 )
Other expense, net ( 272 ) — ( 272 )
Equity in net loss of affiliates — ( 4,314 ) ( 4,314 )
Loss before income taxes ( 104,056 ) ( 15,108 ) ( 119,164 )
Income tax benefit 3,005 — 3,005
Loss from discontinued operations $ ( 101,051 ) $ ( 15,108 ) $ ( 116,159 )
(1) Includes revenue recognized from related parties of $ 3,042 .
(2) Includes the impairment charge of $ 89,679 related to the Transactions discussed above.
Year Ended December 31, 2018
TS Biotechnology Sale EnviroFlight Sale Total
Revenues (1) $ 9,396 $ — $ 9,396
Operating expenses (2) 111,039 470 111,509
Operating loss ( 101,643 ) ( 470 ) ( 102,113 )
Other expense, net ( 1,757 ) — ( 1,757 )
Equity in net loss of affiliates — ( 2,622 ) ( 2,622 )
Loss before income taxes ( 103,400 ) ( 3,092 ) ( 106,492 )
Income tax benefit 6,103 — 6,103
Loss from discontinued operations $ ( 97,297 ) $ ( 3,092 ) $ ( 100,389 )
(1) Includes revenue recognized from related parties of $ 4,665 .
(2) Includes an impairment charge of $ 60,504 recorded in 2018 related to Oxitec's developed technology targeting the Aedes Aegypti mosquito and a $ 5,057 loss on disposal of certain leasehold improvements, equipment and other fixed assets in conjunction with the closing of one of Oxitec's research and development facilities in Brazil.
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The following table presents the significant non-cash items, investments in EnviroFlight and purchases of property, plant and equipment for the discontinued operations for the Transactions that are included in the accompanying consolidated statements of cash flows.
Year Ended December 31,
2020 2019 2018
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization $ — $ 5,107 $ 9,007
Impairment of goodwill — 58,042 —
Impairment of other noncurrent assets — 31,637 60,504
Gain on sale of discontinued operations ( 672 ) — —
Loss on release of cumulative foreign currency translation adjustment 26,957 — —
Unrealized and realized depreciation on equity securities and preferred stock, net 106 458 1,927
Equity in net loss of EnviroFlight 38 4,314 2,622
Stock-based compensation expense ( 1,346 ) 2,507 3,872
Deferred income taxes — ( 2,710 ) ( 5,703 )
Cash flows from investing activities
Investments in EnviroFlight — ( 2,000 ) ( 12,250 )
Purchases of property, plant and equipment ( 382 ) ( 23,326 ) ( 21,191 )
Also see Note 14 below.
Equity Method Investments
The Company accounted for its investment in EnviroFlight using the equity method of accounting.
The Company accounted for certain equity securities held in one of its collaborators using the fair value option, and the collaborator was considered an equity method investment through September 30, 2018.
Summarized financial data for equity method investments included in discontinued operations during the periods below are shown in the following tables.
December 31,
2019
Current assets $ 703
Noncurrent assets 30,549
Total assets 31,252
Current liabilities 2,352
Non-current liabilities 88
Total liabilities 2,440
Net assets $ 28,812
Year Ended December 31,
2020 2019 2018
Revenues $ 16 $ 510 $ 268
Operating expenses 92 9,159 12,709
Operating loss ( 76 ) ( 8,649 ) ( 12,441 )
Other, net — 21 39
Net loss $ ( 76 ) $ ( 8,628 ) $ ( 12,402 )
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Where applicable, the notes to the accompanying consolidated financial statements have been updated to reflect information pertaining to the Company's continuing operations.
Out-of-Period Adjustment
During the year ended December 31, 2020, the Company recorded an out-of-period adjustment of $ 26,572 to loss from discontinued operations which relates to the effect of cumulative foreign translation losses associated with the entities sold in the TS Biotechnology Sale. This charge, which is entirely noncash, should have been recorded in the year ended December 31, 2019 as an additional impairment charge included in loss from discontinued operations. There was no impact to net loss from continuing operations, cash and short-term investments, cash flows, or Segment Adjusted EBITDA. The error also had no impact on the cash consideration received upon closing of the TS Biotechnology Sale nor the representations and warranties made by the Company in the transaction. The Company evaluated the effects of this out-of-period adjustment, both qualitatively and quantitatively, and concluded that this adjustment was not material to the Company's financial position or results of operations for the years ended December 31, 2020 and 2019.
4. Mergers and Acquisitions
Asset Acquisition of Certain Harvest Entities
In September 2018, the Company, through its wholly owned subsidiary ActoBio, issued $ 30,000 of convertible promissory notes to Harvest, a related party, to acquire Harvest's ownership in CRS Bio, Inc. ("CRS Bio"); Genten Therapeutics, Inc. ("Genten Therapeutics"); and Relieve Genetics, Inc. ("Relieve Genetics") (collectively the "Harvest entities"). The Company also received $ 15,500 cash in the transaction from the acquisition of the Harvest entities. Prior to the transaction, the Company held a noncontrolling interest in the Harvest entities, with a combined carrying value for all entities of $ 4,303 , and accounted for its ownership using the equity method of accounting. Following the transaction, the Company owns 100 % of the equity interests of the Harvest entities including the rights that had been previously licensed to the Harvest entities by the Company. The Harvest entities did not meet the definition of a business and accordingly, the transaction was accounted for as an asset acquisition.
By reacquiring the rights previously licensed to the Harvest entities, the Company was relieved from its obligations under the original ECCs and therefore wrote off deferred revenue of $ 10,078 in September 2018 as part of the transaction. The remaining value acquired of $ 8,721 was considered in-process research and development related to the reacquired rights under the ECCs and expensed immediately.
See Note 12 for additional discussion of the convertible promissory notes.
5. Investments in Joint Ventures
Intrexon Energy Partners
In March 2014, the Company and certain investors (the "IEP Investors"), including an affiliate of Third Security, a related party, entered into a Limited Liability Company Agreement that governs the affairs and conduct of business of Intrexon Energy Partners, LLC ("Intrexon Energy Partners"), a JV formed to optimize and scale-up the Company's methane bioconversion platform technology for the production of certain fuels and lubricants. The Company also entered into an ECC with Intrexon Energy Partners providing exclusive rights to the Company's technology for the use in bioconversion 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 has committed to make capital contributions of up to $ 25,000 , and the IEP Investors, as a group and pro rata in accordance with their respective membership interests in Intrexon Energy Partners, have committed to make additional capital contributions of up to $ 25,000 , at the request of Intrexon Energy Partners' board of managers (the "Intrexon Energy Partners Board") and subject to certain limitations. As of December 31, 2020, the Company's remaining commitment was $ 4,225 . Intrexon Energy Partners is governed by the Intrexon Energy Partners Board, which has five members. Two members of the Intrexon Energy Partners Board are designated by the Company and three members are designated by a majority of the IEP Investors. The Company and the IEP Investors have the right, but not the obligation, to make additional capital contributions above the initial limits when and if solicited by the Intrexon Energy Partners Board.
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The Company's investment in Intrexon Energy Partners was $( 425 ) and $( 423 ) as of December 31, 2020 and 2019, respectively, and is included in other accrued liabilities in the accompanying consolidated balance sheets, which represents the Company's equity in losses for contractually committed contributions to Intrexon Energy Partners.
See Note 3 for additional discussion regarding the Company's investment in Intrexon Energy Partners.
Intrexon Energy Partners II
In December 2015, the Company and certain investors (the "IEPII Investors"), including Harvest, entered into a Limited Liability Company Agreement that governs the affairs and conduct of business of Intrexon Energy Partners II, LLC ("Intrexon Energy Partners II"), a JV formed to utilize the Company's methane bioconversion platform 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 has committed to make additional capital contributions of up to $ 10,000 , and the IEPII Investors, as a group and pro rata in accordance with their respective membership interests in Intrexon Energy Partners II, have committed to make additional capital contributions of up to $ 10,000 , at the request of Intrexon Energy Partners II's board of managers (the "Intrexon Energy Partners II Board") and subject to certain limitations. As of December 31, 2020, the Company's remaining commitment was $ 10,000 . Intrexon Energy Partners II is governed by the Intrexon Energy Partners II Board, which has five members. One member of the Intrexon Energy Partners II Board is designated by the Company and four members are designated by a majority of the IEPII Investors. The Company and the IEPII Investors have the right, but not the obligation, to make additional capital contributions above the initial limits when and if solicited by the Intrexon Energy Partners II Board.
The Company's investment in Intrexon Energy Partners II was $( 435 ) and $( 435 ) as of December 31, 2020 and 2019, respectively, and is included in other accrued liabilities in the accompanying consolidated balance sheets, which represents the Company's equity in losses for contractually committed contributions to Intrexon Energy Partners II.
See Notes 3 and 17 for additional discussion regarding the Company's investment in Intrexon Energy Partners II.
Intrexon T1D Partners
In March 2016, the Company and certain investors (the "T1D Investors"), including affiliates of Third Security, entered into a Limited Liability Company Agreement that governs the affairs and conduct of business of Intrexon T1D Partners, LLC ("Intrexon T1D Partners"), a JV formed to utilize the Company's proprietary ActoBiotics platform to develop and commercialize products to treat type 1 diabetes. The Company also entered into an ECC with Intrexon T1D Partners that provided the exclusive rights to the Company's technology for use in the field, as a result of which the Company received a technology access fee of $ 10,000 while retaining a 50 % membership interest in Intrexon T1D Partners. The T1D Investors made initial capital contributions, totaling $ 10,000 in the aggregate, in exchange for pro rata membership interests in Intrexon T1D Partners totaling 50 %. Precigen committed to make capital contributions of up to $ 5,000 , and the T1D Investors, as a group and pro rata in accordance with their respective membership interests in Intrexon T1D Partners, committed to make additional capital contributions of up to $ 5,000 , at the request of Intrexon T1D Partners' board of managers, which consisted of two members appointed by the Company and three members appointed by a majority of the T1D Investors. The Company satisfied its commitment in 2018.
In November 2018, the Company, together with its wholly owned subsidiary ActoBio, issued 1,933,737 shares of Precigen common stock valued at $ 18,970 to the T1D Investors to acquire their ownership interest in Intrexon T1D Partners. Following the transaction, the Company owns 100 % of the membership interests in Intrexon T1D Partners, including the rights that had been previously licensed to Intrexon T1D Partners by the Company in the ECC. Intrexon T1D Partners did not meet the definition of a business, and accordingly, the transaction was accounted for as an asset acquisition. By reacquiring the rights previously licensed to Intrexon T1D Partners, the Company was relieved from its obligations under the original ECC and therefore wrote off $ 8,517 of deferred revenue in November 2018 as part of the transaction. The remaining value of $ 10,453 was considered in-process research and development related to the reacquired rights under the ECC and expensed immediately.
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6. Collaboration and Licensing Revenue
The Company's collaborations and licensing agreements may provide for multiple promises to be satisfied by the Company and typically include a license to the Company's technology platforms, participation in collaboration committees, and performance of certain research and development services. Based on the nature of the promises in the Company's collaboration and licensing agreements, the Company typically combines most of its promises into a single performance obligation because the promises are highly interrelated and not individually distinct. Options to acquire additional services are considered to determine if they constitute material rights. At contract inception, the transaction price is typically the upfront payment received and is allocated to the performance obligations. The Company has determined the transaction price should be recognized as revenue based on its measure of progress under the agreement primarily based on inputs necessary to fulfill the performance obligation.
See Note 2 for additional discussion of the Company's revenue recognition policy related to collaboration and licensing payments.
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.
The following table summarizes the amounts recorded as revenue in the consolidated statements of operations for each significant counterparty to a collaboration or licensing agreement for the years ended December 31, 2020, 2019 and 2018.
Year Ended December 31,
2020 2019 2018
ZIOPHARM Oncology, Inc. $ 200 $ 2,171 $ 16,298
Ares Trading S.A. — — 11,175
Oragenics, Inc. 3,053 ( 564 ) 1,353
Intrexon T1D Partners, LLC — — 2,502
Intrexon Energy Partners, LLC — 2,596 6,929
Intrexon Energy Partners II, LLC — 1,217 2,998
Castle Creek Biosciences, Inc. 17,810 3,713 1,394
Harvest start-up entities (1) — 4,862 14,447
Other 145 64 12,444
Total (2) $ 21,208 $ 14,059 $ 69,540
(1) For the years ended December 31, 2019 and 2018, revenue recognized from collaborations with Harvest start-up entities include Thrive Agrobiotics, Inc.; Exotech Bio, Inc.; and AD Skincare, Inc. For the year ended December 31, 2018, revenue recognized from collaborations with Harvest start-up entities also include Genten Therapeutics and CRS Bio.
(2) Collaboration and licensing revenues recognized for the years ended December 31, 2020, 2019 and 2018, include the recognition of $ 20,205 , $ 7,505 , and $ 39,446 , respectively, associated with upfront and milestone payments which were previously deferred.
The following is a summary of the terms of the Company's significant collaborations and licensing agreements from continuing operations.
ZIOPHARM Collaborations
In January 2011, the Company entered into an ECC with ZIOPHARM Oncology, Inc. ("ZIOPHARM"), a related party at the time. Pursuant to the ECC, ZIOPHARM received a license to the Company's technology platform within the field of oncology as defined more specifically in the agreement. The Company received upfront consideration upon execution of the ECC in the form of ZIOPHARM common shares valued at $ 17,457 , shares of ZIOPHARM common stock valued at $ 18,330 as consideration upon achievement of a milestone in 2012, and reimbursements for research and development services performed during the ECC. In March 2015, in conjunction with the worldwide License and Collaboration Agreement ("Merck Agreement") with Ares Trading S.A. ("Ares Trading"), a wholly owned subsidiary of Merck KGaA, and ZIOPHARM discussed below, the Company and ZIOPHARM amended their existing ECC. The amendment modified the scope of the ECC
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in connection with the Merck Agreement and provided that the Company would pay to ZIOPHARM 50 % of all payments received for upfront fees, milestones and royalties under the Merck Agreement. See discussion of the Merck Agreement below.
In June 2016, the Company amended the ECC and a prior ECC that was mutually terminated in December 2017 to reduce the rate of royalty that the Company was entitled to receive on certain products commercialized pursuant to the agreements. As consideration for execution of the amendments, ZIOPHARM issued the Company shares of ZIOPHARM's Series 1 Preferred Stock. The Company allocated the consideration received to each ECC based on the cumulative value of upfront and milestone payments previously received pursuant to that ECC. See Note 18 for additional discussion of the terms of the preferred stock and the accounting treatment.
In October 2018, the Company, through its wholly owned subsidiary PGEN Therapeutics, entered into a license agreement (the "ZIOPHARM License Agreement") with ZIOPHARM, which terminated and replaced the terms of the original ZIOPHARM ECC, including the amendments thereto. Pursuant to the terms of the ZIOPHARM License Agreement, the Company granted ZIOPHARM an exclusive, worldwide, royalty-bearing, sub-licensable license to research, develop and commercialize (i) products utilizing the Company's RheoSwitch gene switch ("RTS") to express IL-12 (the "IL-12 Products") for the treatment of cancer, (ii) chimeric antigen receptor ("CAR") products directed to (a) CD19 for the treatment of cancer (the "CD19 Products"), and (b) a second target, subject to the rights of the Company to pursue such target under the Merck Agreement, and (iii) T-cell receptor ("TCR") products (the "TCR Products") designed for neoantigens for the treatment of cancer or the treatment and prevention of human papilloma virus ("HPV") to the extent that the primary reason for such treatment or prevention is to prevent cancer, which is referred to as the HPV Field. The Company has also granted ZIOPHARM an exclusive, worldwide, royalty-bearing, sub-licensable license for certain patents relating to the Company's Sleeping Beauty technology to research, develop and commercialize TCR Products for both neoantigens and shared antigens for the treatment of cancer and in the HPV Field. ZIOPHARM will be solely responsible for all aspects of the research, development and commercialization of the exclusively licensed products for the treatment of cancer. ZIOPHARM is required to use commercially reasonable efforts to develop and commercialize IL-12 Products and CD19 Products, and after a two-year period, the TCR Products. The Company also granted ZIOPHARM an exclusive, worldwide, royalty-bearing, sub-licensable license to research, develop and commercialize products utilizing an additional construct that expresses RTS IL-12 (the "Gorilla IL-12 Products") for the treatment of cancer and in the HPV Field. ZIOPHARM is responsible for all development costs associated with each of the licensed products, other than Gorilla IL-12 Products. ZIOPHARM and the Company will share the development costs and operating profits for Gorilla IL-12 Products, with ZIOPHARM responsible for 80 % of the development costs and receiving 80 % of the operating profits, as defined in the ZIOPHARM License Agreement, and the Company responsible for the remaining 20 % of the development costs and receiving 20 % of the operating profits, except that ZIOPHARM will bear all development costs and the Company will share equally in operating profits for Gorilla IL-12 Products in the HPV Field (the "Gorilla Program").
In consideration of the licenses and other rights granted by the Company, ZIOPHARM will pay the Company an annual license fee of $ 100 and agreed to reimburse the Company $ 1,000 , paid in four quarterly installments, with respect to historical Gorilla IL-12 Products (the "historical Gorilla reimbursements"). ZIOPHARM will make milestone payments, payable upon the initiation of later stage clinical trials and upon the approval of exclusively licensed programs in various jurisdictions, totaling up to an additional $ 52,500 for each of four exclusively licensed programs, up to an aggregate of $ 210,000 . In addition, ZIOPHARM will pay the Company tiered royalties ranging from low-single digits to high-single digits on the net sales derived from the sales of any approved IL-12 Products and CAR products. ZIOPHARM will also pay the Company royalties ranging from low-single digits to mid-single digits on the net sales derived from the sales of any approved TCR Products, up to maximum royalty amount of $ 100,000 in the aggregate. ZIOPHARM will also pay the Company 20 % of any sublicensing income received by ZIOPHARM relating to the licensed products.
The Company reacquired rights to research, develop and commercialize CAR products for all other targets. In addition, the Company may research, develop and commercialize products for the treatment of cancer, outside of the products exclusively licensed to ZIOPHARM. The Company will pay ZIOPHARM royalties ranging from low-single digits to mid-single digits on the net sales derived from the sale of the Company's CAR products, up to $ 50,000 . The Company also received from ZIOPHARM reimbursement of costs incurred to transition the necessary knowledge and materials for ZIOPHARM programs for a period of one year from the effective date (the "Transition Services").
As between the parties, the Company agreed to perform all of the obligations of ZIOPHARM under the Merck Agreement, other than an obligation of exclusivity thereunder and ZIOPHARM will remain responsible for all payments owed under the Merck Agreement with respect to CD19 and the other target under the Merck Agreement as a result of ZIOPHARM's, its affiliates' or its sublicensees' exploitation of CAR products. Further, the Company is entitled to receive all rights and financial considerations with respect to all other CAR products, subject to the CAR royalties due to ZIOPHARM for such products. The ZIOPHARM License Agreement will terminate on a product-by-product and/or country-by-country basis upon the expiration of
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the later to occur of (i) the expiration of the last to expire patent claim for a licensed product, or (ii) 12 years after the first commercial sale of a licensed product in such country. In addition, ZIOPHARM may terminate the ZIOPHARM License Agreement on a country-by-country or program-by-program basis following written notice to the Company, and either party may terminate the ZIOPHARM License Agreement following notice of a material breach.
Pursuant to the ZIOPHARM License Agreement, the 2016 Securities Issuance Agreement between the Company and ZIOPHARM was terminated as of the effective date of the ZIOPHARM License Agreement, all of the benefits, rights, obligations and liabilities thereunder immediately ceased and terminated and the Company returned to ZIOPHARM all of the preferred stock owned by the Company as of the Effective Date, which was valued at $ 158,376 . See Note 18 for additional discussion of the preferred stock.
Prior to the execution of the ZIOPHARM License Agreement, the Company had $ 51,084 of deferred revenue remaining from the original ECC, which was related to the Company's obligations to perform under that agreement. Replacement of the original ECC with the ZIOPHARM License Agreement was a contract modification under ASC 606 that represented the termination of the original agreement and the creation of a new agreement as the remaining rights, obligations, and services to be exchanged, which were limited to the Transition Services, were distinct from those under the ECC. Therefore, the Company reviewed the various forms of consideration in the ZIOPHARM License Agreement to determine the transaction price. As the Company's obligations under the ZIOPHARM License Agreement were only related to the Transition Services and no other obligations under the ECC remained, a portion of the previously deferred revenue from the ECC was relieved, which the Company determined to be $ 49,329 , and the remaining $ 1,755 was included in the transaction price. The initial annual license payment of $ 100 was also included in the transaction price. The remaining annual license payments and potential milestone payments were constrained at the modification date and will only be recognized when the payments become probable of being received. Royalty payments from sales of ZIOPHARM products developed pursuant to the ZIOPHARM License Agreement will be recognized when the sales occur. The Company recognized payments from Transition Services as those services were performed and recognized the transaction price of $ 1,855 as it performed the Transition Services required under the ZIOPHARM License Agreement.
The Company also reviewed the consideration paid and potential consideration to be paid to ZIOPHARM as part of the ZIOPHARM License Agreement, which included the $ 158,376 of ZIOPHARM preferred stock returned by the Company and potential royalty payments to ZIOPHARM from sales of the Company's CAR products. The Company determined the exchange of its investment in ZIOPHARM preferred stock for certain CAR rights previously licensed under the ECC (i.e., in-process research and development) and the relief of performance obligations to ZIOPHARM under the ECC constituted an exchange for distinct goods and services. Therefore, the Company wrote off the $ 49,329 of relieved deferred revenue and recorded an expense of $ 109,047 for the reacquired in-process research and development. Potential royalty payments to ZIOPHARM will be expensed as incurred as they relate to distinct goods or services.
The Company determined that the Gorilla Program represented a separate collaboration agreement under the scope of ASC 808, Collaborative Arrangements, ("ASC 808") and was not included in the accounting for the ZIOPHARM License Agreement under ASC 606. The Company recognized $ 500 of the historical Gorilla reimbursements on the contract modification date and recognized the remaining amounts when receipt became probable. The development costs and operating profits from the Gorilla Program will be recognized in accordance with ASC 808.
Merck Licensing Agreement
In March 2015, the Company signed the Merck Agreement with Ares Trading and ZIOPHARM through which the parties established a collaboration for the research and development and commercialization of certain products for the prophylactic, therapeutic, palliative or diagnostic use for cancer in humans. Pursuant to the Merck Agreement, the Company received a technology access fee of $ 115,000 as upfront consideration, of which $ 57,500 was paid to ZIOPHARM in accordance with the terms of the agreement. Upon the selection of the first two targets by Ares Trading, the Company received $ 10,000 in equal quarterly installments over two years .
In December 2018, the Company entered into a Securities Purchase, Assignment and Assumption Agreement (the "Merck Purchase Agreement") with Ares Trading pursuant to which the Company reacquired Ares Trading's development and commercialization rights under the Merck Agreement. As consideration for the reacquisition of the Merck Agreement, the Company issued Ares Trading 20,640,119 shares of Precigen common stock valued at $ 140,353 and agreed to pay Ares Trading a royalty of 10 % of the net sales derived from two CAR products specified in the Merck Purchase Agreement. By reacquiring the rights previously licensed to Ares Trading, the Company is relieved of its obligations under the Merck Agreement and therefore wrote off deferred revenue of $ 31,826 . The remaining value acquired of $ 108,527 was considered in-process research and development related to the reacquired rights under the Merck Agreement and expensed immediately. The
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potential future royalty payments to Ares Trading do not represent consideration paid to a customer and will be recorded when the payments are probable. See Note 12 for additional discussion of this transaction.
Oragenics Collaboration
In June 2015, the Company entered into an ECC with Oragenics, a related party at the time. Pursuant to the ECC, at the transaction effective date, Oragenics received a license to the Company's technology platform within the field of biotherapeutics for use in certain treatments of oral mucositis and other diseases and conditions of the oral cavity, throat, and esophagus. Upon execution of the ECC, the Company received a technology access fee of a $ 5,000 convertible promissory note, which was subsequently converted to shares of Oragenics' common stock. These shares were sold in the TS Biotechnology Sale (Note 3). The Company received reimbursement payments for research and development services provided pursuant to the agreement during the ECC and manufacturing services for Company materials provided to Oragenics during the ECC. In July 2020, the Company and Oragenics mutually agreed to terminate the ECC, and accordingly, the Company recognized the remaining balance of deferred revenue associated with the ECC totaling $ 2,823 . Following the termination of the ECC, Oragenics is no longer a related party.
Intrexon T1D Partners Collaboration
In March 2016, the Company entered into an ECC with Intrexon T1D Partners, a JV between the Company and certain investors and a related party. Pursuant to the ECC, Intrexon T1D Partners received an exclusive license to the Company's technology platform to develop and commercialize products to treat type 1 diabetes. Upon execution of the ECC, the Company received a technology access fee of $ 10,000 . The Company received reimbursement of research and development services provided pursuant to the ECC agreement. In November 2018, the Company completed an asset acquisition with the T1D Investors, resulting in the Company owning 100 % of the membership interest of Intrexon T1D Partners including all rights under the ECC (Note 5).
Genten Therapeutics, CRS Bio, and Relieve Genetics Collaborations
In 2016, the Company entered into three separate ECCs with Genten Therapeutics, CRS Bio, and Relieve Genetics, all affiliates of Harvest and related parties. The total upfront consideration received for the three collaborations was $ 10,933 , which mostly consisted of equity interests in these entities. The Company also received reimbursements for research and development services provided pursuant to the ECCs. In September 2018, the Company completed an asset acquisition with Harvest, resulting in the Company owning 100 % of the equity interests in these entities, including all rights under the ECCs (Note 4).
Intrexon Energy Partners Collaboration
In March 2014, the Company entered into an ECC with Intrexon Energy Partners, a JV between the Company and certain investors and a related party. The ECC grants Intrexon Energy Partners an exclusive license to the Company's technology platform to optimize and scale-up the Company's methane bioconversion platform for the production of certain fuels and lubricants. Upon execution of the ECC, the Company received a technology access fee of $ 25,000 as upfront consideration. The Company receives reimbursement payments for research and development services as provided for in the ECC agreement. The term of the ECC commenced in March 2014 and continues until March 2034 unless terminated prior to that date by either party in the event of certain material breaches defined in the agreement and may be terminated voluntarily by Intrexon Energy Partners upon 90 days written notice to the Company. The ECC is not active while the IEP Investors evaluate the status of the project and their desired future development activities.
Intrexon Energy Partners II Collaboration
In December 2015, the Company entered into an ECC with Intrexon Energy Partners II, a JV between the Company and certain investors and a related party. Pursuant to the ECC, Intrexon Energy Partners II received an exclusive license to the Company's technology platform to optimize and scale-up the Company's methane bioconversion platform for the production of 1,4-butanediol (BDO), a key chemical intermediate that is used to manufacture spandex, polyurethane, plastics, and polyester. Upon execution of the ECC, the Company received a technology access fee of $ 18,000 and is entitled to reimbursement of research and development services as provided for in the ECC agreement. The term of the ECC commenced in December 2015 and continues until December 2035; termination prior to that date may be initiated (i) by either party in the event of certain material breaches defined in the agreement or (ii) may be terminated voluntarily by Intrexon Energy Partners II upon 90 days written notice to the Company. The ECC is not active while the IEPII Investors evaluate the status of the project and their desired future development activities.
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Exotech Bio, AD Skincare, and Thrive Agrobiotics Collaborations
In 2015 and 2016, the Company entered into three separate ECCs with Exotech Bio, Inc. ("Exotech Bio"), AD Skincare, Inc. ("AD Skincare"), and Thrive Agrobiotics, Inc. ("Thrive Agrobiotics"), all affiliates of Harvest and related parties at the time. The total upfront consideration received for the three collaborations was $ 11,000 , which consisted of equity interests in each of these entities. The Company also received reimbursements for research and development services provided pursuant to the ECCs. In conjunction with a settlement agreement with Harvest (Note 17), these ECCs were terminated in December 2020, and the previously licensed technology rights reverted to the Company pursuant to the ECCs. The Company wrote off the remaining balance of deferred revenue associated with these ECCs totaling $ 6,993 as an offset to the loss recognized on the settlement agreement.
Castle Creek Collaborations
In October 2012, the Company entered into an ECC (the "2012 Castle Creek ECC") with Castle Creek Biosciences, Inc. ("Castle Creek", formerly known as Fibrocell Science, Inc.). Castle Creek was a publicly traded cell and gene therapy company focused on diseases affecting the skin and connective tissue and a related party until it was acquired in December 2019 by Castle Creek Pharmaceutical Holdings, Inc. ("Castle Creek Pharmaceutical"), a privately held company focused on developing medicine for rare genetic disorders. Pursuant to the 2012 Castle Creek ECC, at the transaction effective date, Castle Creek received a license to the Company's technology platform to develop and commercialize genetically modified and non-genetically modified autologous fibroblasts and autologous dermal cells in the United States of America. The Company received (i) upfront consideration upon execution of the ECC in the form of Castle Creek common stock valued at $ 7,576 , (ii) shares of Castle Creek common stock valued at $ 7,612 as consideration for a 2013 amendment which expanded the field of use defined in the agreement, (iii) sublicensing fees totaling $ 3,750 in the form of cash in 2019, and (iv) reimbursements for research and development services performed during the ECC.
In March 2020, the Company and Castle Creek terminated the 2012 Castle Creek ECC by mutual agreement ("Termination Agreement") with the parties agreeing that the two drug product candidates, FCX-007 and FCX-013, pursuant to the ECC would be treated as "Retained Products" under the terms of the 2012 Castle Creek ECC. As Retained Products, Castle Creek retains a license under the 2012 Castle Creek ECC to continue to develop and commercialize the Retained Products within the field of use of the 2012 Castle Creek ECC for so long as Castle Creek continues to pursue such development and commercialization. No further licenses to the Company's technology within the field of use are provided to Castle Creek. On a quarterly basis, Castle Creek will pay the Company royalties of 7 % of net sales up to $ 25,000 and 14 % of net sales above $ 25,000 on each Retained Product from the 2012 Castle Creek ECC, as defined in the agreement. Additionally, the Termination Agreement provides for the Company to perform certain drug product manufacturing activities related to the Retained Products. The Termination Agreement was accounted for as a new contract, and the remaining deferred revenue from the 2012 Castle Creek ECC is being recognized prospectively as the manufacturing activities are performed.
In December 2015, the Company entered into a second ECC with Castle Creek (the "2015 Castle Creek ECC"). Pursuant to the ECC, at the transaction effective date, Castle Creek received a license to the Company's technology platform to develop and commercialize genetically-modified fibroblasts to treat chronic inflammatory and degenerative diseases of the joint, including arthritis and related conditions. In February 2020, the Company and Castle Creek mutually agreed to terminate the 2015 Castle Creek ECC, and accordingly, the Company recognized the remaining balance of deferred revenue associated with the 2015 Castle Creek ECC totaling $ 10,000 .
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Deferred Revenue
Deferred revenue primarily consists of consideration received for the Company's collaboration and licensing agreements. Deferred revenue consisted of the following:
December 31,
2020 2019
Collaboration and licensing agreements $ 23,420 $ 50,593
Prepaid product and service revenues 2,126 2,805
Other 277 435
Total $ 25,823 $ 53,833
Current portion of deferred revenue $ 2,800 $ 5,697
Long-term portion of deferred revenue 23,023 48,136
Total $ 25,823 $ 53,833
Revenue is recognized under collaboration and licensing agreements as services are performed. Certain of the arrangements are not active while the other party evaluates the status of the project and its desired future development activities. The following table summarizes the remaining balance of deferred revenue associated with upfront and milestone payments for each significant counterparty to a collaboration or licensing agreement as of December 31, 2020 and 2019, as well as the estimated remaining performance period as of December 31, 2020.
Average Remaining Performance Period (Years) December 31,
2020 2019
Oragenics, Inc. 0.0 $ — $ 2,864
Intrexon Energy Partners, LLC 3.2 8,362 8,362
Intrexon Energy Partners II, LLC 3.9 12,843 12,843
Castle Creek Biosciences, Inc. 1.0 379 17,697
Harvest start-up entities (1) 0.0 — 6,993
Other 2.2 1,836 1,834
Total $ 23,420 $ 50,593
(1) As of December 31, 2019, the balance of deferred revenue for collaborations with Harvest start-up entities includes Thrive Agrobiotics, Exotech Bio, and AD Skincare.
7. Short-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 December 31, 2020:
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Aggregate
Fair Value
United States government debt securities $ 48,048 $ 14 $ ( 1 ) $ 48,061
Certificates of deposit 264 — — 264
Total $ 48,312 $ 14 $ ( 1 ) $ 48,325
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The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of available-for-sale investments as of December 31, 2019:
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Aggregate
Fair Value
United States government debt securities $ 8,989 $ 7 $ — $ 8,996
Certificates of deposit 264 — — 264
Total $ 9,253 $ 7 $ — $ 9,260
See Notes 2 and 8 for further discussion on the Company's method for determining the fair value of its assets.
As of December 31, 2020, all of the available-for-sale investments were due within one year based on their contractual maturities.
Changes in market interest rates and bond yields cause certain investments to fall below their cost basis, resulting in unrealized losses on investments. The unrealized losses of the Company's investments were primarily a result of unfavorable changes in interest rates subsequent to the initial purchase of these investments and are not significant as of December 31, 2020.
8. Fair Value Measurements
The carrying amount of cash and cash equivalents, 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, including the items for which the fair value option has been elected, as of December 31, 2020:
Quoted Prices in Active Markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) December 31,
2020
Assets
United States government debt securities $ — $ 48,061 $ — $ 48,061
Other — 264 — 264
Total $ — $ 48,325 $ — $ 48,325
The following table presents the placement in the fair value hierarchy of financial assets that are measured at fair value on a recurring basis, including the items for which the fair value option has been elected, as of December 31, 2019:
Quoted Prices in Active Markets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) December 31,
2019
Assets
United States government debt securities $ — $ 8,996 $ — $ 8,996
Other — 264 — 264
Total $ — $ 9,260 $ — $ 9,260
The method used to estimate the fair value of the Level 2 short-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. During 2019, the Company's equity securities of AquaBounty (Note 1) and preferred stock owned in one of its collaborators (Note 18) were classified as Level 3 within the fair value hierarchy prior to disposition.
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The following table summarizes the changes in the Level 3 investments during the year ended December 31, 2019.
2019
Beginning balance $ 191
Retained interest in deconsolidated subsidiary 14,239
Dividend income from investments in preferred stock 48
Net unrealized appreciation in the fair value of the investments in equity securities and preferred stock 7,446
Proceeds from sale of equity securities ( 21,587 )
Proceeds to be received from preferred stock ( 337 )
Ending balance $ —
Liabilities
The carrying values of the Company's long-term debt, excluding the Convertible Notes, approximates fair value due to the length of time to maturity and/or the existence of interest rates that approximate prevailing market rates.
The calculated fair value of the Convertible Notes (Note 12) was approximately $ 165,000 and $ 126,000 as of December 31, 2020 and 2019, 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 consolidated balance sheets at amortized cost, which was $ 168,147 and $ 157,560 as of December 31, 2020 and 2019, respectively.
During the year ended December 31, 2020, the Company's contingent consideration liability, which was $ 585 as of December 31, 2019, was reduced to $ 0 as the period for potential payment of this contingent consideration expired without payment in June 2020. The contingent consideration liability was remeasured to fair value at each reporting date until the contingency was resolved, and those changes in fair value were recognized in earnings. The changes in the fair value of the Level 3 liability during the years ended December 31, 2020 and 2019 were as follows:
2020 2019
Beginning balance $ 585 $ 585
Change in fair value of contingent consideration recognized in selling, general, and administrative expenses ( 585 ) —
Ending balance $ — $ 585
See Notes 10 and 11 for discussion of non-recurring fair value estimates used in calculating impairment charges recorded during the year ended December 31, 2020.
9. Inventory
Inventory consists of the following:
December 31,
2020 2019
Supplies, embryos and other production materials $ 2,060 $ 2,282
Work in process 2,348 3,702
Livestock 5,047 7,553
Feed 1,904 2,560
Total inventory $ 11,359 $ 16,097
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10. Property, Plant and Equipment, Net
Property, plant and equipment consist of the following:
December 31,
2020 2019
Land and land improvements $ 9,844 $ 9,814
Buildings and building improvements 12,088 11,765
Furniture and fixtures 1,228 1,025
Equipment 31,150 33,707
Leasehold improvements 6,260 6,607
Breeding stock 868 5,191
Computer hardware and software 5,684 6,877
Construction and other assets in progress 2,754 5,229
69,876 80,215
Less: Accumulated depreciation and amortization ( 34,952 ) ( 36,263 )
Property, plant and equipment, net $ 34,924 $ 43,952
Depreciation expense was $ 7,449 , $ 8,222 and $ 8,946 for the years ended December 31, 2020, 2019 and 2018, respectively.
During the year ended December 31, 2020, the Company recorded impairment losses of $ 920 , which is included in impairment of other noncurrent assets on the accompanying consolidated statement of operations, primarily related to right-of-use assets at certain of the Company's leased locations.
During the year ended December 31, 2019, the Company recorded impairment losses of $ 448 , which is included in impairment of other noncurrent assets on the accompanying consolidated statement of operations, related to the impairment of property, plant and equipment in conjunction with the closing of two of its operating units during the third quarter of 2019.
11. Goodwill and Intangible Assets, Net
The changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019, are as follows:
2020 2019
Beginning of year $ 54,119 $ 83,992
Impairment — ( 29,820 )
Foreign currency translation adjustments 244 ( 53 )
End of year $ 54,363 $ 54,119
The Company had $ 43,643 of cumulative impairment losses as of December 31, 2020 and 2019.
For the year ended December 31, 2019, during the Company's annual goodwill impairment test, the Company determined it was more-likely-than-not that the fair value of the Trans Ova reporting unit was less than its carrying amount. As a result, the Company compared the carrying amount of the Trans Ova reporting unit to the fair value and determined the carrying amount exceeded the fair value resulting in a $ 29,642 goodwill impairment charge for the excess carrying value. Additionally, the Company recorded $ 178 of goodwill impairment in conjunction with the closing of two of its reporting units during the third quarter of 2019.
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See Note 20 for information regarding goodwill by reportable segment.
Intangible assets consist of the following as of December 31, 2020:
Weighted Average Useful Life (Years) Gross Carrying Amount Accumulated Amortization Net
Patents, developed technologies and know-how 16.0 $ 96,927 $ ( 34,412 ) $ 62,515
Customer relationships 6.4 10,850 ( 9,340 ) 1,510
Trademarks 8.4 5,900 ( 4,529 ) 1,371
Total $ 113,677 $ ( 48,281 ) $ 65,396
Intangible assets consist of the following as of December 31, 2019:
Gross Carrying Amount Accumulated Amortization Net
Patents, developed technologies and know-how $ 90,659 $ ( 26,619 ) $ 64,040
Customer relationships 10,700 ( 8,440 ) 2,260
Trademarks 5,900 ( 3,854 ) 2,046
Total $ 107,259 $ ( 38,913 ) $ 68,346
In the year ended December 31, 2018, the Company recorded a $ 16,027 loss related to the abandonment of certain developed technologies that the Company ceased using in the fourth quarter of 2018. The Company does not expect to use these technologies as a defensive asset or market them for sale in the future. Because these technologies were used in combination with other technologies, the identifiable cash flows did not result in an impairment loss; however, because the Company made a decision to abandon the assets, it recorded the charge to research and development expense.
Amortization expense was $ 7,593 , $ 7,920 and $ 11,666 for the years ended December 31, 2020, 2019 and 2018, respectively. Estimated aggregate amortization expense for definite lived intangible assets is expected to be as follows:
2021 $ 7,704
2022 6,908
2023 5,742
2024 5,432
2025 5,419
Thereafter 34,191
Total $ 65,396
12. Lines of Credit and Long-Term Debt
Lines of Credit
Trans Ova has a $ 5,000 revolving line of credit with First National Bank of Omaha that matures on April 1, 2021. The line of credit bears interest at the greater of the U.S. Prime Rate or 3.00 %, and the actual rate was 3.25 % as of December 31, 2020. As of December 31, 2020, there was no outstanding balance. The amount available under the line of credit is based on eligible accounts receivable and inventory up to the maximum principal amount and was $ 5,000 as of December 31, 2020. The line of credit is collateralized by certain of Trans Ova's assets and contains certain restricted covenants that include maintaining minimum tangible net worth and working capital and maximum allowable annual capital expenditures.
Exemplar has a $ 700 revolving line of credit with American State Bank that matures on October 31, 2021. The line of credit bears interest at 4.00 % per annum. As of December 31, 2020, there was no outstanding balance.
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Long-Term Debt
Long-term debt consists of the following:
December 31,
2020 2019
Convertible debt $ 168,147 $ 213,771
Notes payable 3,655 4,089
Other 80 131
Long-term debt 171,882 217,991
Less current portion 360 31,670
Long-term debt, less current portion $ 171,522 $ 186,321
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:
• 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 year ended December 31, 2020. On or after April 1, 2023 until June 30, 2023, holders may convert their Convertible Notes at any time. Precigen may not redeem the Convertible Notes 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
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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 (Note 13). As of December 31, 2020, the outstanding principal balance on the Convertible Notes was $ 200,000 and the carrying value of long-term debt was $ 168,147 . The effective interest rate on the Convertible Notes, including amortization of the long-term debt discount and debt issuance costs, is 11.02 %. As of December 31, 2020, the unamortized long-term debt discount and debt issuance costs totaled $ 31,853 .
The components of interest expense related to the Convertible Notes were as follows:
Year Ended December 31,
2020 2019 2018
Cash interest expense $ 7,000 $ 7,000 $ 3,462
Non-cash interest expense 10,587 9,459 4,378
Total interest expense $ 17,587 $ 16,459 $ 7,840
Accrued interest of $ 3,500 is included in other accrued liabilities on the accompanying consolidated balance sheet as of December 31, 2020.
ActoBio Convertible Notes
In September 2018, ActoBio issued $ 30,000 of convertible promissory notes (the "ActoBio Notes") to a related party in conjunction with an asset acquisition with Harvest (Note 4). The ActoBio Notes, which accrued interest at 3.0 % compounded annually ("accrued PIK interest"), matured in September 2020. The Company issued 6,293,402 shares of Precigen common stock upon conversion of the outstanding principal balance and accrued PIK interest at maturity. Interest expense was $ 616 , $ 921 , and $ 290 for the years ended December 31, 2020, 2019 and 2018, respectively.
Precigen and PGEN Therapeutics Convertible Note
In December 2018, in conjunction with the Merck Purchase Agreement (Note 6), Precigen and PGEN Therapeutics jointly and severally issued a $ 25,000 convertible note (the "Merck Note") to Ares Trading in exchange for cash. The Merck Note had a maturity date of June 28, 2021 although it automatically converted to Precigen common stock on the first trading day following the second anniversary of issuance, which is December 2020, if not otherwise converted prior to that date. In October 2020, pursuant to the terms of the Merck Note, Ares Trading voluntarily elected to convert the entire $ 25,000 outstanding into 6,758,400 shares of Precigen common stock. The shares are restricted from resale by Ares Trading for a period of 180 days from the date of issuance.
Notes Payable
Trans Ova has a note payable to American State Bank that matures in April 2033 and had an outstanding principal balance of $ 3,655 as of December 31, 2020. Trans Ova pays monthly installments of $ 39 , which includes interest at 3.95 %. The note payable is collateralized by certain of Trans Ova's real estate and non-real estate assets.
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Future Maturities
Future maturities of long-term debt as of December 31, 2020 are as follows:
2021 $ 360
2022 397
2023 200,360
2024 374
2025 389
Thereafter 1,855
Total $ 203,735
13. Income Taxes
The components of loss from continuing operations before income taxes are presented below:
Year Ended December 31,
2020 2019 2018
Domestic $ ( 97,313 ) $ ( 167,990 ) $ ( 394,580 )
Foreign ( 6,542 ) ( 3,274 ) ( 1,332 )
Loss from continuing operations before income taxes $ ( 103,855 ) $ ( 171,264 ) $ ( 395,912 )
The components of income tax benefit from continuing operations are presented below:
Year Ended December 31,
2020 2019 2018
United States federal income taxes:
Current $ — $ — $ ( 31 )
Deferred 37 ( 561 ) ( 11,855 )
Foreign income taxes:
Current 74 34 68
Deferred ( 204 ) ( 230 ) 635
State income taxes:
Current — — 113
Deferred 11 ( 173 ) ( 4,355 )
Income tax benefit from continuing operations $ ( 82 ) $ ( 930 ) $ ( 15,425 )
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Income tax benefit from continuing operations for the years ended December 31, 2020, 2019 and 2018 differed from amounts computed by applying the applicable United States federal corporate income tax rate of 21% to loss before income taxes as a result of the following:
2020 2019 2018
Computed statutory income tax benefit from continuing operations $ ( 21,810 ) $ ( 35,965 ) $ ( 83,141 )
State and provincial income tax benefit, net of federal income taxes ( 5,167 ) ( 5,494 ) ( 21,717 )
Nondeductible stock based compensation 5,709 10,303 4,696
Nondeductible officer compensation 728 595 294
Impairment of goodwill — 273 —
Research and development tax incentives ( 524 ) ( 1,772 ) ( 185 )
Acquisition and internal restructuring transaction costs — 260 52
Reacquired in-process research and development — — 2,696
Change in deferred state tax rate — — 8,666
United States-foreign rate differential ( 21 ) ( 76 ) 215
Other, net ( 306 ) ( 72 ) ( 3,517 )
( 21,391 ) ( 31,948 ) ( 91,941 )
Change in valuation allowance for deferred tax assets 21,309 31,018 76,516
Total income tax benefit from continuing operations $ ( 82 ) $ ( 930 ) $ ( 15,425 )
The tax effects of temporary differences that comprise the deferred tax assets and liabilities included in continuing operations as of December 31, 2020 and 2019, are as follows:
2020 2019
Deferred tax assets
Allowance for doubtful accounts $ 1,816 $ 2,140
Inventory 289 415
Equity securities and investments in affiliates 570 11,933
Property, plant and equipment 1,882 1,830
Intangible assets 74,981 85,308
Accrued liabilities 1,834 3,385
Lease liabilities 6,140 10,035
Stock-based compensation 16,402 19,389
Deferred revenue 7,423 14,876
Research and development tax credits 10,210 9,686
Investments in subsidiaries included in discontinued operations — 8,592
Net operating, capital loss, and interest expense carryforwards 275,519 196,663
Total deferred tax assets 397,066 364,252
Less: Valuation allowance 387,348 349,008
Net deferred tax assets 9,718 15,244
Deferred tax liabilities
Right-of-use assets 5,011 8,091
Long-term debt 7,604 9,987
Total deferred tax liabilities 12,615 18,078
Net deferred tax liabilities included in continuing operations $ ( 2,897 ) $ ( 2,834 )
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Activity within the valuation allowance for deferred tax assets included in continuing operations during the years ended December 31, 2020, 2019 and 2018 was as follows:
2020 2019 2018
Valuation allowance at beginning of year $ 349,008 $ 292,217 $ 211,078
Increase (decrease) in valuation allowance as a result of
Mergers and acquisitions, net — — 418
Deconsolidation of AquaBounty — ( 3,504 ) —
Establishment of deferred taxes for subsidiaries included in discontinued operations — 8,592 —
Current year continuing operations 21,309 31,018 98,549
Discontinued operations treated as asset sales 7,977 10,585 3,832
Discontinued operations related to MBP Titan 8,019 9,663 8,735
Adoption of ASC 842 — 512 —
Adoption of ASC 606 — — ( 7,477 )
Equity component of long-term debt — — ( 13,367 )
Change in deferred state tax rate — — ( 8,666 )
Foreign currency translation adjustment 1,035 ( 75 ) ( 885 )
Valuation allowance at end of year $ 387,348 $ 349,008 $ 292,217
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. Due to the Company and its subsidiaries' histories of net losses incurred from inception, any corresponding net domestic and certain foreign deferred tax assets have been fully reserved as the Company and its subsidiaries cannot sufficiently be assured that these deferred tax assets will be realized. The components of the deferred tax assets and liabilities as of the date of the mergers and acquisitions by the Company prior to consideration of the valuation allowance are substantially similar to the components of deferred tax assets presented herein.
The Company's past issuances of stock and mergers and acquisitions have resulted in ownership changes as defined in Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"). As a result, utilization of portions of the net operating losses may be subject to annual limitations, however as of December 31, 2020, all such limited losses applicable to Precigen, other than losses inherited via acquisition, have been fully utilized. As of December 31, 2020, approximately $ 42,100 of the Company's domestic net operating losses were inherited via acquisition and are limited based on the value of the target at the time of the transaction.
As of December 31, 2020, the Company has net operating loss carryforwards for United States federal income tax purposes of approximately $ 756,200 available to offset future taxable income, including approximately $ 503,500 generated after 2017, United States capital loss carryforwards of approximately $ 211,500 , and federal and state research and development tax credits of approximately $ 10,200 , prior to consideration of annual limitations that may be imposed under Section 382. Net operating loss carryforwards generated prior to 2018 will begin to expire in 2022, and capital loss carryforwards will expire if unutilized beginning in 2024. The Company's foreign subsidiaries included in continuing operations have foreign loss carryforwards of approximately $ 82,300 , most of which do not expire.
As of December 31, 2020, the Company's direct foreign subsidiaries included in continuing operations had accumulated deficits of approximately $ 21,200 . Future distributions of accumulated earnings of the Company's direct foreign subsidiaries may be subject to United States income and foreign withholding taxes.
The Company and its subsidiaries do not have material unrecognized tax benefits as of December 31, 2020. The Company does not anticipate significant changes in the amount of unrecognized tax benefits in the next 12 months. The Company's tax returns for years 2004 and forward are subject to examination by federal or state tax authorities due to the carryforward of unutilized net operating and capital losses and research and development tax credits.
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14. Shareholders' Equity
Issuances of Precigen Common Stock
Concurrent with entering into the TS Biotechnology Sale on January 1, 2020, the Company also entered into a subscription agreement with TS Biotechnology pursuant to which TS Biotechnology purchased 5,972,696 shares of the Company's common stock for $ 35,000 on January 31, 2020.
In January 2018, Precigen closed a public offering of 6,900,000 shares of its common stock, including 1,000,000 shares of common stock purchased by affiliates of Third Security. The net proceeds of the offering were $ 82,374 , after deducting underwriting discounts of $ 3,688 and offering expenses of $ 188 , all of which were capitalized.
See Notes 12, 17, and 23 for discussion regarding additional issuances of Precigen common stock.
Share Lending Agreement
Concurrently with the offering of the Convertible Notes (Note 12), 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 five 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.
Issuances of AquaBounty Common Stock
In March 2019, AquaBounty completed an underwritten public offering that resulted in net proceeds of $ 6,611 after deducting discounts, fees, and expenses. See Note 1 for additional discussion of issuances of AquaBounty common stock in April 2019, which resulted in the deconsolidation of AquaBounty.
In January 2018, AquaBounty completed an underwritten public offering that resulted in net proceeds of $ 10,616 after deducting discounts, fees and expenses. As part of this offering, Precigen purchased $ 5,000 of additional AquaBounty common stock. In October 2018, certain investors exercised warrants acquired from the January 2018 offering, resulting in additional net proceeds of $ 4,316 , including $ 3,077 from Precigen.
Components of Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are as follows:
December 31,
2020 2019
Unrealized gain on investments $ 13 $ 7
Income (loss) on foreign currency translation adjustments 3,984 ( 27,475 )
Total accumulated other comprehensive income (loss) $ 3,997 $ ( 27,468 )
See Note 3 for further discussion of the release of cumulative losses on foreign currency translation adjustments upon the closing of the TS Biotechnology Sale.
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15. Share-Based Payments
The Company measures the fair value of stock options and 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 consolidated statements of operations are presented below:
Year Ended December 31,
2020 2019 2018
Cost of products $ 10 $ 20 $ 78
Cost of services 134 220 237
Research and development 1,815 3,478 5,017
Selling, general and administrative 17,787 11,380 25,222
Discontinued operations ( 1,380 ) 3,852 5,742
Total $ 18,366 $ 18,950 $ 36,296
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 December 31, 2020, there were 185,078 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 December 31, 2020, there were 27,000,000 shares authorized for issuance under the 2013 Plan, of which 10,225,570 stock options and 1,176,629 RSUs were outstanding and 7,055,010 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 December 31, 2020, there were 5,000,000 shares authorized for issuance under the 2019 Plan, of which 845,248 stock options and 551,083 RSUs were outstanding and 2,432,624 shares were available for grant.
Stock options may be granted with an exercise price equal to or greater than the stock's fair market value at the date of grant. Stock options may be granted with an exercise price less than the stock's fair market value at the date of grant if the stock options are replacement options in accordance with certain United States Treasury regulations. Virtually all stock options have ten -year terms and vest four years from the date of 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, 2017 11,382,747 $ 28.99 7.32
Granted 1,470,339 14.26
Exercised ( 45,159 ) ( 6.59 )
Forfeited ( 929,596 ) ( 21.48 )
Expired ( 785,268 ) ( 26.25 )
Balances at December 31, 2018 11,093,063 27.95 6.81
Granted 1,556,575 6.52
Exercised ( 19,887 ) ( 3.17 )
Forfeited ( 1,236,326 ) ( 24.92 )
Expired ( 2,371,143 ) ( 38.53 )
Balances at December 31, 2019 9,022,282 21.94 6.10
Granted 5,693,498 10.03
Exercised ( 30,061 ) ( 3.88 )
Forfeited ( 976,324 ) ( 15.47 )
Expired ( 2,453,499 ) ( 26.53 )
Balances at December 31, 2020 11,255,896 15.53 7.25
Exercisable at December 31, 2020 5,437,667 19.61 5.61
Total unrecognized compensation costs related to unvested awards as of December 31, 2020 were $ 13,842 , and are expected to be recognized over a weighted-average period of approximately 2.75 years.
The weighted average grant date fair value of options granted during 2020, 2019 and 2018 was $ 2.98 , $ 3.79 and $ 7.94 , respectively. The aggregate intrinsic value of options exercised during 2020, 2019 and 2018 was $ 51 , $ 66 and $ 356 , respectively. The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair value of Precigen's common stock for those shares where the exercise price was lower than the fair value of Precigen's common stock on the date of exercise.
The following table summarizes additional information about stock options outstanding as of December 31, 2020:
Options Outstanding Options Exercisable
Range of Exercise Prices Number of Options Weighted Average Exercise Price Weighted Average Remaining Life (Years) Aggregate Intrinsic Value Number of Options Weighted Average Exercise Price Weighted Average Remaining Life (Years) Aggregate Intrinsic Value
$ 1.55 — $ 5.95 3,259,685 $ 4.63 8.92 $ 18,157 1,271,310 $ 3.11 8.73 $ 9,018
$ 6.06 — $ 15.09 2,261,216 11.01 8.23 1,325 345,788 9.09 4.76 689
$ 15.80 — $ 20.94 3,028,309 18.85 7.38 — 1,216,258 19.82 5.62 —
$ 21.13 — $ 36.84 2,303,371 26.33 4.32 — 2,200,996 26.52 4.22 —
$ 37.88 — $ 47.35 403,315 42.26 4.01 — 403,315 42.26 4.01 —
11,255,896 $ 15.53 7.25 $ 19,482 5,437,667 $ 19.61 5.61 $ 9,707
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The following table summarizes additional information about stock options outstanding as of December 31, 2019:
Options Outstanding Options Exercisable
Range of Exercise Prices Number of Options Weighted Average Exercise Price Weighted Average Remaining Life (Years) Aggregate Intrinsic Value Number of Options Weighted Average Exercise Price Weighted Average Remaining Life (Years) Aggregate Intrinsic Value
$ 3.17 — $ 8.60 1,612,219 $ 6.40 8.08 $ 473 585,144 $ 5.61 5.95 $ 194
$ 8.77 — $ 20.68 1,278,121 15.55 6.53 — 753,064 15.89 5.20 —
$ 20.94 1,646,500 20.94 6.51 — 892,000 20.94 6.02 —
$ 21.00 — $ 29.47 1,976,645 23.71 6.06 — 1,585,940 23.71 5.79 —
$ 29.56 — $ 65.08 2,508,797 34.46 4.38 — 2,448,046 34.47 4.33 —
9,022,282 $ 21.94 6.10 $ 473 6,264,194 $ 24.89 5.20 $ 194
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, 2017 — $ — 0.00
Granted 1,069,126 13.84
Vested ( 25,000 ) ( 15.82 )
Forfeited ( 73,785 ) ( 13.47 )
Balances at December 31, 2018 970,341 13.82 1.43
Granted 2,278,460 6.59
Vested ( 1,159,165 ) ( 8.74 )
Forfeited ( 307,654 ) ( 8.99 )
Balances at December 31, 2019 1,781,982 8.71 1.24
Granted 3,157,390 3.09
Vested ( 2,802,593 ) ( 3.99 )
Forfeited ( 409,067 ) ( 8.59 )
Balances at December 31, 2020 1,727,712 6.11 0.42
Total unrecognized compensation costs related to unvested RSU awards as of December 31, 2020 were $ 4,188 and are expected to be recognized over a weighted-average period of approximately 0.75 years.
Precigen currently uses authorized and unissued shares to satisfy share award exercises.
The Company's Executive Chairman ("Executive Chairman"), who previously served as the Company's Chief Executive Officer ("CEO") until January 1, 2020, and 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. The monthly number of shares of common stock was calculated based on the closing price on the last trading day of each month through March 2019 and based on the volume weighted average of the price of Precigen common stock over the 30 day period ending on the last calendar day of each month thereafter, and the shares were issued pursuant to the terms of a Restricted Stock Unit Agreement ("RSU Agreement") between Precigen and the Executive Chairman pursuant to the terms of the 2013 Plan. The RSU Agreement expired March 31, 2020. The fair value of the shares issued as compensation for services is included in selling, general, and administrative expenses in the Company's consolidated statements of operations and totaled $ 454 , $ 1,868 , and $ 1,956 for the years ended December 31, 2020, 2019 and 2018, respectively.
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. The new arrangement consists 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
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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 . The compensation arrangement begins in calendar year 2021, and the foregoing elements were prorated for the nine months of 2020 not covered by the Executive Chairman's previous compensation arrangement discussed above. The terms of the equity awards granted to the Executive Chairman are pursuant to the 2019 Plan.
16. Operating Leases
The Company leases certain facilities and equipment under operating leases. Leases with a lease term of twelve months or less are considered short-term leases and are not recorded on the balance sheet, and expense for these leases is recognized over the term of the lease. All other leases have remaining terms of one to nine years , some of which may include options to extend the lease and some of which may include options to terminate the lease within one year . The Company uses judgment to determine whether it is reasonably possible to extend the lease beyond the initial term or terminate before the initial term ends and the length of the possible extension or early termination . The leases are renewable at the option of the Company and do not contain residual value guarantees, covenants, or other restrictions.
The components of lease costs were as follows:
Year Ended December 31,
2020 2019
Operating lease costs $ 3,578 $ 3,821
Short-term lease costs 1,763 2,042
Variable lease costs 842 845
Lease costs $ 6,183 $ 6,708
As of December 31, 2020, maturities of lease liabilities, excluding short-term and variable leases, for continuing operations were as follows:
2021 $ 3,608
2022 3,392
2023 2,087
2024 1,841
2025 1,116
Thereafter 867
Total 12,911
Present value adjustment ( 2,510 )
Total $ 10,401
Current portion of operating lease liabilities $ 2,657
Long-term portion of operating lease liabilities 7,744
Total $ 10,401
Other information related to operating leases in continuing operations was as follows:
December 31,
2020 2019
Weighted average remaining lease term (years) 4.21 4.81
Weighted average discount rate 10.27 % 10.32 %
Year Ended December 31,
2020 2019
Supplemental disclosure of cash flow information
Cash paid for operating lease liabilities $ 4,012 $ 3,877
Operating lease right-of-use assets added in exchange for new lease liabilities 417 1,137
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17. Commitments and Contingencies
Contingencies
On December 1, 2020, Trans Ova settled one of two patent infringement lawsuits brought by XY, LLC ("XY"). The lawsuit, originally filed in 2012, was tried and appealed between 2016 and 2020. On December 1, 2020, the parties reached a settlement resolving all remaining disputes. As part of that settlement, Trans Ova remitted to XY a settlement payment, which, in addition to all the other monies Trans Ova had previously paid XY, constituted full payment and satisfaction of the judgment, including pre-judgment interest, post-judgment interest, costs, and all past, current and future royalty obligations under the judgment. In exchange, XY released and forever discharged Trans Ova from all obligations arising out of the judgment. In addition, XY dismissed with prejudice its pending appeal. On January 8, 2021, the parties filed a stipulation of case termination with the district court.
The second patent infringement lawsuit brought on by XY was filed in December 2016. On March 20, 2019, the United States District Court for the District of Colorado entered judgment under Rule 54(b) as to ten of the twelve counts of the operative complaint, dismissed those patent counts from the case, and stayed the remaining two counts of patent infringement pending XY's appeal of the Rule 54(b) judgment. While XY's appeal was pending, one of the two patents remaining in the case was separately invalidated in a different district court proceeding, which XY did not appeal. As to the ten dismissed counts in the suit XY brought against Trans Ova, XY appealed dismissal of only four of them, each alleging patent infringement. On July 31, 2020, the United States Court of Appeals for the Federal Circuit reversed the district court's dismissal of those four patent counts and remanded the case for further proceedings. The Court is assessing next steps of the case, including an amended scheduling order.
While this patent infringement lawsuit is pending, Trans Ova shall continue to utilize the technology consistent with the determinations of the court proceedings. Nonetheless, these disputes remain subject to a number of uncertainties, including the outcome of district court and appellate proceedings, the possibility of further claims by XY, and the impact of these matters on Trans Ova's ability to utilize the technology. Trans Ova and the Company could elect to enter into a settlement agreement in order to avoid the further costs and uncertainties of litigation.
In October 2018, the Company received a subpoena from the Division of Enforcement of the SEC informing the Company of a non-public, fact-finding investigation concerning the Company's disclosures regarding its methane bioconversion platform. The Company produced documents to, and met with, the staff of the SEC and voluntarily cooperated with the SEC investigation. In September 2020, the Company reached a final settlement with the SEC regarding the matter. Under the terms of the settlement, the Company, without admitting or denying the allegations of the SEC, consented to the entry of an administrative order requiring that the Company: (i) cease and desist from committing or causing any violations and future violations under Section 13(a) of the Securities Exchange Act of 1934, as amended, and Rules 13a-11 and 12b-20 promulgated thereunder; and (ii) pay a $ 2,500 civil money penalty to the SEC.
In October 2020, three purported shareholder class action lawsuits, captioned Abadilla v. Precigen, Inc., F/K/A Intrexon Corp., et al , Chen v. Precigen, Inc. F/K/A Intrexon Corp., et al , and Seppen v. Precigen, Inc. F/K/A Intrexon Corp., et al , were filed in the U.S. 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 track the allegations in the SEC's administrative order described above. The plaintiffs seek compensatory damages, interest, and an award of reasonable attorneys' fees and costs and have filed motions to consolidate these claims. 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. The complaint names as defendants current directors and certain officers. The plaintiff's claims track the allegations in the SEC's administrative order described above. The plaintiff seeks damages, forfeiture of benefits received by defendants, and an award of reasonable attorneys' fees and costs. The Company intends to defend the lawsuits vigorously; however, there can be no assurances regarding the ultimate outcome of these lawsuits.
On July 10, 2020, the Company received a notice of arbitration from Harvest pursuant to the Collaboration Investment Opportunity Agreement dated March 13, 2015. In December 2020, the Company entered into an agreement with Harvest to resolve matters related to the parties' contractual and equity relationships and to settle all claims made in connection with the notice of arbitration noted above. Pursuant to the settlement agreement, the Company issued 2,117,264 shares of its common stock to Harvest valued at $ 18,103 in consideration of (i) the termination of the ECC agreements with Thrive Agrobiotics, Exotech Bio, and AD Skincare, which the Company had $ 6,993 of deferred revenue remaining related to these ECCs prior to the settlement agreement; (ii) the return of the Company's ownership interest in these Harvest start-up entities that had a total value of $ 326 prior to the settlement agreement; (iii) the commitment of Harvest to take reasonable commercial efforts to transfer its membership interests in Intrexon Energy Partners II; and (iv) mutual irrevocable and unconditional releases of
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claims. The Company wrote off the investment balances and netted the deferred revenue balances associated with the eliminated service obligation against the consideration paid, resulting in a loss on the settlement agreement of $ 11,436 which is included in selling, general and administrative expenses in the accompanying consolidated statement of operations for the year ended December 31, 2020. Outstanding receivables from these Harvest start-up entities related to research and development services performed by the Company under the ECC agreements, which had been fully reserved in 2019, were also forgiven as part of the settlement agreement and written off by the Company. Following the settlement agreement, these Harvest start-up entities are no longer related parties.
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, the Company has fully reserved the amount of any disputed accounts receivable that remained outstanding as of December 31, 2020 and 2019. These disagreements and disputes result in management distraction and may result in litigation, unfavorable settlements, or concessions by the Company, or adverse regulatory action, any of which could harm the Company's business or operations.
In the course of its business, the Company is involved in litigation or legal matters, including governmental investigations. 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 December 31, 2020, 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.
18. 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. Through December 2019, the Company was party to a Services Agreement ("Services Agreement") with Third Security pursuant to which Third Security provided the Company with certain professional, legal, financial, administrative, and other support services necessary to support the Company and its Executive Chairman. Under the Services Agreement, as consideration for providing these services, Third Security was entitled to a fee paid in the form of fully-vested shares of Precigen common stock that approximated $ 800 per month. In 2018, the number of shares of common stock was calculated based on the closing price of the Company's common stock on the 15th day of each month and issued to Third Security at the end of the month. In 2019, the number of shares of common stock was calculated based on the volume weighted average of the closing price of the Company's common stock over the 30-day period ending on the 15th day of the calendar month when the applicable services were provided. For the years ended December 31, 2019 and 2018, the Company issued 1,606,062 shares and 696,033 shares, respectively, with values of $ 8,233 and $ 8,324 , respectively, to Third Security as payment for services rendered pursuant to the Services Agreement.
Following the expiration of the Services Agreement, the Company entered into a new agreement with Third Security under which the Company reimburses 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 prior to and after the expiration of the Services Agreement under a separate agreement. The total expenses incurred by the Company under these arrangements were $ 159 , $ 26 , and $ 47 for the years ended December 31, 2020, 2019 and 2018, respectively. The Company also subleases certain administrative offices to Third Security. The significant terms of the lease mirror the terms of the Company's lease with the landlord, and the Company recorded sublease income of $ 83 , $ 89 , and $ 89 for the years ended December 31, 2020, 2019 and 2018, respectively.
See also Note 15 regarding compensation arrangements between the Company and its Executive Chairman.
In October 2017, the Company entered into a Preferred Stock Equity Facility ("Preferred Stock Equity Facility") with an affiliate of Third Security ("Third Security Affiliate"). Under the Preferred Stock Equity Facility, the Company could, from time to time at its sole and exclusive option, issue and sell to the Third Security Affiliate, up to $ 100,000 of newly issued Series A Redeemable Preferred Stock ("Series A Preferred Stock"). In conjunction with the Company's July 2018 registered underwritten public offering of Convertible Notes (Note 12), the Preferred Stock Equity Facility was terminated. No shares of Series A Preferred Stock had been issued under the Preferred Stock Equity Facility.
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See Notes 1, 3, and 14 regarding additional transactions with affiliates of Third Security.
Transactions with ECC Parties
Collaborators in which the Company holds more than a de minimis equity interest, including interests received as upfront or milestone payments through collaborations, are considered related parties.
The Company held Series 1 Preferred Stock (the "Preferred Shares") of ZIOPHARM previously acquired through collaborations. In conjunction with the ZIOPHARM License Agreement in October 2018 (Note 6), the Company returned to ZIOPHARM all of the Preferred Shares owned or accrued by the Company as of the effective date of the agreement. During the year ended December 31, 2018, the Company recognized $ 14,793 of dividend income in the accompanying consolidated statement of operations. Following the transaction in October 2018, ZIOPHARM is no longer a related party.
The Company held Series A Convertible Preferred Stock (the "Convertible Preferred Shares"), a convertible note, common shares of Castle Creek, and warrants to purchase shares of Castle Creek common stock previously acquired through collaborations and other transactions. As a result of the acquisition of Castle Creek by Castle Creek Pharmaceutical in December 2019, the Company received $ 1,280 in December 2019 for its shares of Castle Creek common stock and received a total of $ 3,311 in January 2020 for the Convertible Preferred Shares and the convertible note, including accrued interest thereon. The $ 3,311 is included in receivables on the accompanying consolidated balance sheet as of December 31, 2019. The Company recognized a total gain of $ 3,222 on the change in fair value of these instruments, which is included in total other expense, net, in the accompanying consolidated statement of operations for the year ended December 31, 2019. Subsequent to the acquisition by Castle Creek Pharmaceutical, Castle Creek is no longer a related party.
During 2018, the Company mutually terminated ECC agreements with three separate related parties which resulted in the recognition of the remaining deferred revenue associated with these ECCs totaling $ 11,877 .
19. Net Loss per Share
The following table presents the computation of basic and diluted net loss per share:
2020 2019 2018
Historical net loss per share:
Numerator:
Net loss from continuing operations attributable to Precigen $ ( 103,773 ) $ ( 168,742 ) $ ( 375,117 )
Net loss from discontinued operations attributable to Precigen ( 66,748 ) ( 153,582 ) ( 134,219 )
Net loss attributable to Precigen $ ( 170,521 ) $ ( 322,324 ) $ ( 509,336 )
Denominator:
Weighted average shares outstanding, basic and diluted 167,065,539 154,138,774 129,521,731
Net loss per share:
Net loss from continuing operations attributable to Precigen per share, basic and diluted
$ ( 0.62 ) $ ( 1.09 ) $ ( 2.90 )
Net loss from discontinued operations attributable to Precigen per share, basic and diluted
( 0.40 ) ( 1.00 ) ( 1.03 )
Net loss attributable to Precigen per share, basic and diluted
$ ( 1.02 ) $ ( 2.09 ) $ ( 3.93 )
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The following potentially dilutive securities as of December 31, 2020, 2019, and 2018, have been excluded from the above computations of diluted weighted average shares outstanding for the years then ended as they would have been anti-dilutive:
December 31,
2020 2019 2018
Convertible debt 11,732,440 21,323,068 18,955,668
Options 11,255,896 9,022,282 11,093,063
Restricted stock units 1,727,712 1,781,982 970,341
Warrants 133,264 133,264 133,264
Total 24,849,312 32,260,596 31,152,336
20. Segments
The Company realigned its business in April 2019, and as a result, its CODM began regularly reviewing disaggregated financial information for various operating segments. The Company's CODM assesses the operating performance of and allocates resources for several operating segments using Segment Adjusted EBITDA. 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 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) loss on impairment of goodwill and other noncurrent assets, (viii) equity in net loss of affiliates, and (ix) recognition of previously deferred revenue associated with upfront and milestone payments as well as cash outflows from capital expenditures and investments in affiliates. For the year ended December 31, 2020, the Company modified the current period definition of Segment Adjusted EBITDA to exclude adjustments recorded to reverse the difference of bonuses accrued as of December 31, 2019 compared to the value of equity awards granted, as the Company determined in March 2020 that those accrued bonuses would be paid through the grant of equity awards instead of cash. The Company also excluded noncash losses associated with settlement agreements. Segment Adjusted EBITDA for the years ended December 31, 2019 and 2018, were not impacted by these changes.
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 businesses included in the Transactions and the operations of MBP Titan which are reported as discontinued operations (Note 3).
For the year ended December 31, 2020, the Company's reportable segments were (i) PGEN Therapeutics, (ii) ActoBio, (iii) Trans Ova, and (iv) the Human Biotherapeutics division. These identified reportable segments met the quantitative thresholds to be reported separately for the year ended December 31, 2020. See Note 1 for a description of PGEN Therapeutics, ActoBio, and Trans Ova. The Company's Human Biotherapeutics division is an operating division within Precigen which in 2020 and 2019 included the Company's majority-owned subsidiary, Triple-Gene LLC, and its collaborations with Castle Creek (Note 6). The All Other category as reported below reflects Precigen's other operating segments that do not meet the quantitative thresholds to be reported separately.
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Information by reportable segment was as follows:
PGEN Therapeutics ActoBio Trans Ova Human Biotherapeutics All Other Total
Goodwill
Balances at December 31, 2018 $ 15,232 $ 1,788 $ 46,236 $ — $ 20,736 $ 83,992
Reallocations from changes to reporting units — — — 482 ( 482 ) —
Impairments — — ( 29,642 ) — ( 178 ) ( 29,820 )
Foreign currency translation adjustments — ( 53 ) — — — ( 53 )
Balances at December 31, 2019 15,232 1,735 16,594 482 20,076 54,119
Foreign currency translation adjustments — 244 — — — 244
Balances at December 31, 2020 $ 15,232 $ 1,979 $ 16,594 $ 482 $ 20,076 $ 54,363
Year Ended December 31, 2020
PGEN Therapeutics ActoBio Trans Ova Human Biotherapeutics All Other Total
Revenues from external customers $ 776 $ 3,053 $ 71,186 $ 17,810 $ 10,299 $ 103,124
Intersegment revenues 5,006 ( 3 ) 340 — 281 5,624
Total segment revenues $ 5,782 $ 3,050 $ 71,526 $ 17,810 $ 10,580 $ 108,748
Segment Adjusted EBITDA $ ( 25,611 ) $ ( 7,861 ) $ 2,624 $ ( 2,139 ) $ 4,274 $ ( 28,713 )
Year Ended December 31, 2019
PGEN Therapeutics ActoBio Trans Ova Human Biotherapeutics All Other Total
Revenues from external customers $ 2,227 $ ( 364 ) $ 68,672 $ 3,713 $ 12,514 $ 86,762
Intersegment revenues 11,341 498 1,361 — 1,270 14,470
Total segment revenues $ 13,568 $ 134 $ 70,033 $ 3,713 $ 13,784 $ 101,232
Segment Adjusted EBITDA $ ( 30,164 ) $ ( 13,662 ) $ ( 6,337 ) $ ( 1,051 ) $ ( 4,901 ) $ ( 56,115 )
Year Ended December 31, 2018
PGEN Therapeutics ActoBio Trans Ova Human Biotherapeutics All Other Total
Revenues from external customers $ 29,021 $ 6,684 $ 75,178 $ — $ 30,213 $ 141,096
Intersegment revenues 617 840 558 — 255 2,270
Total segment revenues $ 29,638 $ 7,524 $ 75,736 $ — $ 30,468 $ 143,366
Segment Adjusted EBITDA $ ( 32,832 ) $ ( 12,797 ) $ ( 5,730 ) $ — $ ( 10,708 ) $ ( 62,067 )
The table below reconciles total segment revenues from reportable segments to total consolidated revenues:
Year Ended December 31,
2020 2019 2018
Total segment revenues from reportable segments $ 98,168 $ 87,448 $ 112,898
Other revenues, including from other operating segments 10,634 17,964 40,841
Elimination of intersegment revenues ( 5,624 ) ( 14,690 ) ( 2,561 )
Total consolidated revenues $ 103,178 $ 90,722 $ 151,178
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The table below reconciles Segment Adjusted EBITDA for reportable segments to consolidated net loss from continuing operations before income taxes:
Year Ended December 31,
2020 2019 2018
Segment Adjusted EBITDA for reportable segments $ ( 32,987 ) $ ( 51,214 ) $ ( 51,359 )
All Other Segment Adjusted EBITDA 4,274 ( 4,901 ) ( 10,708 )
Remove cash paid for capital expenditures and investments in affiliates 6,970 12,512 15,276
Add recognition of previously deferred revenue associated with upfront and milestone payments 25,005 14,721 33,204
Other expenses:
Interest expense ( 18,400 ) ( 17,666 ) ( 8,473 )
Depreciation and amortization ( 15,042 ) ( 16,142 ) ( 20,612 )
Impairment losses ( 920 ) ( 30,810 ) —
Reacquisition of in-process research and development — — ( 236,748 )
Loss on settlement agreement ( 11,436 ) — —
Stock-based compensation expense ( 19,746 ) ( 15,098 ) ( 30,554 )
Adjustment related to accrued bonuses paid in equity awards 2,833 — —
Equity in net loss of affiliates ( 1,138 ) ( 2,416 ) ( 8,986 )
Other 11 67 —
Unallocated corporate costs ( 37,566 ) ( 46,011 ) ( 74,609 )
Eliminations ( 5,713 ) ( 14,306 ) ( 2,343 )
Consolidated net loss from continuing operations before income taxes $ ( 103,855 ) $ ( 171,264 ) $ ( 395,912 )
As of December 31, 2020 and 2019, the Company had $ 5,908 and $ 6,724 , respectively, of long-lived assets in foreign countries. The Company recognized revenues derived in foreign countries totaling $ 595 , $ 1,401 , and $ 6,255 for the years ended December 31, 2020, 2019 and 2018, respectively.
21. Quarterly Financial Information (Unaudited)
The following information has been derived from unaudited consolidated statements that, in the opinion of management, include all recurring adjustments necessary for a fair statement of such information. The information in the tables below reflect the impact of discontinued operations further discussed in Note 3.
Three Months Ended
March 31,
2020 June 30,
2020 September 30,
2020 December 31, 2020 (1)
Total revenues $ 29,838 $ 30,424 $ 23,583 $ 19,333
Operating loss ( 16,600 ) ( 11,830 ) ( 23,006 ) ( 35,167 )
Loss from continuing operations ( 20,846 ) ( 15,709 ) ( 27,536 ) ( 39,682 )
Net loss attributable to Precigen ( 55,998 ) ( 43,354 ) ( 29,508 ) ( 41,661 )
Net loss from continuing operations attributable to Precigen per share, basic and diluted $ ( 0.13 ) $ ( 0.10 ) $ ( 0.17 ) $ ( 0.22 )
Net loss attributable to Precigen per share, basic and diluted $ ( 0.35 ) $ ( 0.26 ) $ ( 0.18 ) $ ( 0.23 )
(1) During the fourth quarter of 2020, the Company recorded a loss on settlement agreement related to Harvest (Note 17).
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Three Months Ended
March 31,
2019 June 30,
2019 September 30,
2019 December 31, 2019 (1)
Total revenues $ 22,585 $ 32,836 $ 18,299 $ 17,002
Operating loss ( 41,855 ) ( 21,508 ) ( 34,702 ) ( 68,724 )
Loss from continuing operations ( 44,539 ) ( 22,440 ) ( 39,119 ) ( 64,236 )
Net loss attributable to Precigen ( 60,709 ) ( 38,766 ) ( 53,634 ) ( 169,215 )
Net loss from continuing operations attributable to Precigen per share, basic and diluted $ ( 0.28 ) $ ( 0.14 ) $ ( 0.25 ) $ ( 0.41 )
Net loss attributable to Precigen per share, basic and diluted $ ( 0.40 ) $ ( 0.25 ) $ ( 0.35 ) $ ( 1.09 )
(1) During the fourth quarter of 2019, the Company recorded a goodwill impairment charge related to the Trans Ova reporting unit (Note 11) as well as impairment charges on certain assets held for sale (Note 3).
22. Defined Contribution Plans
The Company sponsors defined contribution plans covering employees who meet certain eligibility requirements. The Company makes contributions to the plans in accordance with terms specified in the plan agreement. The Company's contributions to the plans were $ 873 , $ 1,186 and $ 1,392 for the years ended December 31, 2020, 2019 and 2018, respectively.
23. Subsequent Events
In January 2021, the Company closed a public offering of 17,250,000 shares of its common stock, resulting in net proceeds of approximately $ 121,200 , after deducting underwriting discounts and estimated capitalizable offering expenses.
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 which were originally due to expire in July 2025. The Company will record the impact of this termination as discontinued operations in the Company's consolidated financial statements during the first quarter of 2021. As of December 31, 2020, the right-of-use asset related to the lease was $ 9,131 and the lease liability was $ 13,428 , which are included in current assets held for sale or abandonment and current liabilities held for sale or abandonment, respectively, in the consolidated balance sheet. Following January 2021, the Company has no further payment obligations under the lease.
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