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Item 7. Management’s Discussion and Analysis

2023-03-06 compared with 2022-03-01 · 102 added, 158 removed, 246 unchanged (51% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, Part I, Item 1, "Business" and Item 8, "Financial Statements and Supplementary Data." For information on risks and uncertainties related to our business that may make past performance not indicative of future results, or cause actual results to differ materially from any forward-looking statements, see "Special Note Regarding Forward-Looking Statements," and Part I, Item 1A, "Risk Factors."

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the fiscal year 2021 compared to fiscal year 2020.

Financial overview

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We may enter into strategic transactions for individual platforms or programs in the future from which we may generate new collaboration and licensing revenues.

We continue to generate product and service revenues through our Trans Ova and Exemplar subsidiaries, and in 2021 and 2020, both of these subsidiaries generated positive Segment Adjusted EBITDA.

We continue to generate product and service revenues through our Exemplar subsidiary, and for each of the years in the period ended December 31, 2022 and 2021, Exemplar generated positive Segment Adjusted EBITDA.

Products currently in our clinical pipeline will require regulatory approval and/or commercial scale-up before they may commence significant product sales and operating profits.

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Sources of revenue

Historically, we have derived our collaboration and licensing revenues through agreements with counterparties for the development and commercialization of products enabled by our technologies.

Generally, the terms of these collaborations provide that we receive some or all of the following:

(i) technology access fees upon signing;

(ii) reimbursements of costs incurred by us for our research and development and/or manufacturing efforts related to specific applications provided for in the collaboration;

(iii) milestone payments upon the achievement of specified development, regulatory and commercial activities;

and (iv) royalties on sales of products arising from the collaboration.

Our technology access fees and milestone payments may be in the form of cash or securities of the collaborator.

Our collaborations contain multiple arrangements, and we typically defer revenues from the technology access fees and milestone payments received and recognize such revenues in the future over the anticipated performance period.

We are also entitled to sublicensing revenues in those situations where our collaborators choose to license our technologies to other parties.

As we continue to shift our focus on our healthcare business, we have and may continue to mutually terminate collaboration agreements or repurchase rights to the exclusive fields from collaborators, relieving us of any further performance obligations under the agreement.

Although we have generated revenue in the past from collaboration agreements, our primary current revenues arise from Exemplar, which generates product and service revenues through the development and sale of genetically engineered miniature swine models.

We recognize revenue when control of the promised product or service is transferred to the customer.

As we have shifted our focus to our healthcare business, we have and may continue to mutually terminate historical collaboration agreements or repurchase rights to the exclusive fields from collaborators, relieving us of any further performance obligations under the agreement.

Upon such circumstances or when we determine no further performance obligations are required of us under an agreement, we may recognize any remaining deferred revenue as either collaboration revenue or as a reduction of operating expense, depending on the circumstances.

See "Notes to the Consolidated Financial Statements - Note 5" appearing elsewhere in this Annual Report for a discussion of changes to our significant collaborations.

We generate product and service revenues primarily through sales of products or services that are created from technologies developed or owned by us.

Our primary current revenues arise from Trans Ova and include sales of advanced reproductive technologies, including our bovine embryo transfer and IVF 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.

We recognize revenue when control of the promised product is transferred to the customer or when the promised service is completed.

In future periods, in connection with our focus on healthcare, our revenues will primarily depend on our ability to advance and create our own programs and the extent to which we bring products enabled by our technologies to market.

Other than for collaboration revenues recognized upon cancellation or modification of an existing collaboration or for revenues generated pursuant to future strategic transactions for any of our existing platforms or programs, we expect our collaboration revenues will continue to decrease in the near term.

Our revenues will also depend upon our ability to maintain or improve the volume and pricing of Trans Ova's and Exemplar's current product and service offerings and to develop and scale up production of new offerings from the various technologies of our subsidiaries.

Our revenues will also depend upon our ability to maintain or improve the volume and pricing of Exemplar's current product and service offerings and to develop and scale up production of new offerings from the various technologies of our subsidiaries.

As we focus on our healthcare business, we anticipate that our expenses will increase substantially if, and as, we continue to advance the preclinical and clinical development of our existing product candidates and our research programs.

We expect a significant period of time could pass before commercialization of our various product candidates or before the achievement of contractual milestones and the realization of royalties on product candidates commercialized under our collaborations and revenues sufficient to achieve profitability.

Accordingly, there can be no assurance as to the timing, magnitude, and predictability of revenues to which we might be entitled.

Accordingly, there can be no assurance as to the timing, magnitude, and predictability of revenues, if any, to which we might be entitled.

Cost of products and services

Cost of products and services includes primarily labor and related costs, drugs and supplies used primarily in Trans Ova's embryo transfer and IVF processes, livestock and feed used in production, and facility charges, including rent and depreciation.

Cost of products and services, all which are related to our Exemplar reporting segment, includes primarily labor and related costs, drugs and supplies, feed used in production, and facility charges, including rent and depreciation.

Fluctuations in the price of livestock and feed have not had a significant impact on our operating margins and no derivative financial instruments are used to mitigate the price risk.

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• facility-related expenses, which include direct depreciation costs and unallocated expenses for rent and maintenance of facilities and other operating costs.

Our research and development expenses are generally incurred by our reportable segments and primarily relate to either costs incurred to expand or otherwise improve our technologies or the costs incurred to develop our own products and services.

Our research and development expenses are generally incurred by our two reportable segments and primarily relate to either costs incurred to expand or otherwise improve our technologies or the costs incurred to develop our own products and services.

Our Biopharmaceuticals segment is progressing preclinical and clinical programs that target urgent and intractable diseases in our core therapeutics areas of immuno-oncology, autoimmune disorders and infectious diseases, including PRGN-3005, PRGN-3006, PRGN-3007, PRGN-2009, PRGN-2012, and AG019.

Exemplar's research and development activities relate to new and improved pig research models.

Trans Ova's research and development activities support new and improved product and service offerings for its customers.

The following table summarizes our research and development expenses incurred by

reportable segment and reconciles those expenses to research and development expenses on the consolidated statements of operations for the years ended December 31, 2021, 2020, and 2019.

Our Exemplar Segment’s research and development activities relate to new and improved pig research models.

The following table summarizes our research and development expenses incurred by reportable segment and reconciles those expenses to research and development expenses on the consolidated statements of operations for the years ended December 31, 2022, 2021, and 2020.

Year Ended December 31,

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Exemplar 320 289 611

Trans Ova 2,222 2,228 2,037

Total research and development expenses from reportable segments 47,170 47,933 39,603

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Other income (expense), net

We historically held equity securities and preferred stock of private and publicly traded companies, including investments received and/or purchased from certain collaborators.

These equity securities and preferred stock were recorded at fair value at each reporting date.

Unrealized appreciation (depreciation) resulting from fair value adjustments were reported as other income (expense) in the consolidated statements of operations.

In January 2020, as part of the TS Biotechnology Sale, we sold our remaining equity securities and investment in preferred stock, and therefore, no future gains (losses) will be incurred.

Interest expense is expected to decrease in future periods upon the adoption of a new accounting standard effective January 1, 2022, which simplifies the accounting for the Convertible Notes as described in "Notes to the Consolidated Financial Statements - Note 2" appearing elsewhere in this Annual Report.

Interest income consists of interest earned on our cash and cash equivalents and short-term and long-term investments and may fluctuate based on amounts invested and current interest rates.

Dividend income historically consisted of the monthly preferred stock dividends received from our investments in preferred stock, all of which have been liquidated as of December 31, 2020.

Interest income consists of interest earned on our cash and cash equivalents and short-term and long-term investments and may

fluctuate based on amounts invested and current interest rates.

Interest expense consists primarily of interest on our Convertible Notes, which decreased in 2022 due to both the adoption of a new accounting standard effective January 1, 2022, which simplified the accounting for the Convertible Notes, and the redemption of a portion of our Convertible Notes.

See "Notes to the Condensed Consolidated Financial Statements - Note 2" appearing elsewhere in this Annual Report for further discussion regarding the adoption of the new accounting standard.

In the second half of 2022, we retired Convertible Notes with principal amounts of $156.7 million.

The net gain recorded on extinguishment of 1.0 million is included in Other income (expense), net.

See "Notes to the Condensed Consolidated Financial Statements - Note 11" appearing elsewhere in this Annual Report for further discussion.

The extinguishment of these Convertible Notes will alleviate us of $4.0 million in future cash interest payments had we held the Convertible Notes until maturity.

We expect interest expense to be significantly lower in the first half of 2023 and diminish to zero after anticipated retirement of all remaining Convertible Notes on or before July 1, 2023.

Equity in net income (loss) of affiliates

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We account for investments in our JVs using the equity method of accounting since we have the ability to exercise significant influence, but not control, over the operating activities of these entities.

We previously accounted for our investments in start-up entities backed by Harvest using the equity method of accounting.

In December 2020, we

entered into an agreement with Harvest to resolve matters related to the parties' contractual and equity relationships and our remaining equity interests in start-up entities backed by Harvest were terminated.

Segment performance

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Operating expenses

Cost of products 24,864 28,550 (3,686) (12.9) %

Cost of services 33,521 26,963 6,558 24.3 %

Cost of products and services 6,339 5,745 594 10.3 %

Research and development 47,170 47,933 (763) (1.6) %

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Loss from continuing operations (79,777) (110,807) 31,030 (28.0) %

Income (loss) from discontinued operations, net of income tax benefit (2) 4,599 (66,748) 71,347 106.9 %

Income from discontinued operations, net of income tax benefit (1) 108,094 18,641 89,453 >200%

Net loss attributable to Precigen $ 28,317 $ (92,166) $ 120,483 130.7 %

(1) Including $0 and $3,053 from related parties for the years ended December 31, 2021 and 2020, respectively.

(1) See "Notes to the Consolidated Financial Statements - Note 3" appearing elsewhere in this Annual Report.

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(formerly ZIOPHARM Oncology, Inc.) $ 100 $ 100 $ —

Oragenics, Inc.

— 3,053 (3,053)

Intrexon Energy Partners, LLC 3,768 — 3,768

Intrexon Energy Partners II, LLC 10,793 — 10,793

Castle Creek Biosciences, Inc.

388 17,810 (17,422)

Other — 18 (18)

Total $ 14,661 $ 506 $ 14,155

Collaboration and licensing revenues decreased $20.7 million, or 98 percent, from the year ended December 31, 2020, primarily due to the accelerated recognition of previously deferred revenue in the prior period upon the mutual terminations of collaborations with Castle Creek and Oragenics, Inc., or Oragenics, in 2020.

Product revenues and gross margin

Product revenues increased $2.9 million, or 12 percent, over the year ended December 31, 2020.

The increase in product revenue was primarily due to higher customer demand for animals as a result of stronger beef and dairy industries in the current year.

Gross margin on products improved in the current period as a result of the increased revenues, increased focus on selling higher margin products, and operational efficiencies that have been gained through reductions in workforce and improved inventory management.

Service revenues and gross margin

Service revenues increased $18.7 million, or 33 percent, over the year ended December 31, 2020.

Trans Ova's revenues and gross margins thereon improved primarily due to an increase in services performed as a result of higher customer demand as the beef and dairy industries have been stronger in the current year and a change in pricing structure with certain customers.

Additionally, Exemplar's service revenues and gross margins thereon improved in the current period due to an increase in services performed resulting from a higher demand from existing and new customers as well as a combination of price increases and a change in pricing structure with certain customers.

Collaboration and licensing revenues increased $14.2 million from the year ended December 31, 2021, primarily due to the fact we obtained control of Intrexon Energy Partners and Intrexon Energy Partners II and ultimately dissolved in 2022 therefore we recognized the remaining balance of deferred revenue associated with Intrexon Energy Partners and Intrexon Energy Partners II, less the amounts paid to acquire the membership interests of the investors.

Product and services revenues, and gross margin

Product revenues decreased $(0.3) million, or (12) percent, over the year ended December 31, 2021.

The decrease in product revenues was primarily due to product mix and lower customer demand at Exemplar.

Service revenues decreased $(1.0) million, or (9) percent, over the year ended December 31, 2021.

The decrease in service revenues was primarily the result of lower demand from existing customers.

Gross margin on products and services declined in the current period as a result of the decreased revenues and an increase in salaries, benefits, and other personnel costs at Exemplar.

Research and development expenses

Research and development expenses increased $8.5 million, or 20 percent, over the year ended December 31, 2020.

Contract research organization costs and lab supplies increased $6.7 million with the advancement of our clinical and preclinical programs.

Research and development expenses decreased $(0.8) million, or (1.6) percent, over the year ended December 31, 2021.

Salaries, benefits, and other personnel costs increased $1.8 million due to an increase in the hiring of employees to support the growth in the Company's development activities as well as increases in salaries of our continuing employees.

These increases were offset by a decrease in contract research organization costs and lab supplies of $2.4 million, primarily due to timing differences, the completion of our 1b/2a clinical trial of AG019 in the fourth quarter of 2021, and as well as a continued prioritization of clinical product candidates with less expense incurred related preclinical research programs compared to 2021.

Selling, general and administrative expenses

SG&A expenses decreased $(4.0) million, or (8) percent, from the year ended December 31, 2021.

Salaries, benefits, and other personnel costs decreased $4.9 million in 2021 primarily due to (i) a reduced headcount as we scaled down our corporate functions to support our more streamlined organization and (ii) reduced stock compensation costs for previously granted awards that became fully vested in early 2021.

There was a reduction of $13.9 million for the nonrecurring settlements with Harvest and the SEC in the prior period (see "Notes to the Consolidated Financial Statements - Notes 16 and 17" appearing elsewhere in this Annual Report).

This was partially offset by an increase in professional fees of $1.1 million, primarily due to an increase in legal fees associated with certain litigation matters.

Impairment of other noncurrent assets

Impairment losses for the year ended December 31, 2021 of $0.5 million arose primarily from an impairment of the right-of-use asset at one of the Company's leased facilities.

Impairment losses for the year ended December 31, 2020 of $0.9 million were due to the impairment of the right-of-use assets for certain of our leased facilities.

Salaries, benefits, and other personnel costs decreased $4.9 million in 2022 primarily due to (i) a reduced headcount as we scaled down our corporate functions to support our more streamlined organization and (ii) reduced stock compensation costs.

This increase was partially offset by an increase of $0.9 million in legal and professional fees, primarily related to ongoing litigation.

Total other expense, net

Total other expense, net, which primarily includes interest expense, increased $1.5 million, or 9 percent, over the year ended December 31, 2020.

Interest income earned on our short-term investments decreased in 2021 due to lower interest rates.

Additionally, interest expense increased associated with our Convertible Notes issued in July 2018 due to the noncash amortization of the related debt discount and debt issuance costs.

Total other expense, net, which primarily includes interest expense related to our Convertible Notes issued July 2018 , decreased $13.9 million, or (73) percent.

The current period decrease is primarily due to the adoption of a new accounting standard effective January 1, 2022 noted above, which simplified the accounting for the Convertible Notes and reduced non-cash interest expense, as well as a $1.0 million gain in connection with the early retirement of a portion of our Convertible Notes.

Segment performance

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Exemplar 4,997 6,898 (1,901) (27.6) %

Trans Ova 17,420 13,530 3,890 28.8 %

Unallocated corporate costs (32,913) (33,506) 593 1.8 %

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Exemplar 12,015 13,345 (1,330) (10.0) %

Trans Ova 89,606 71,186 18,420 25.9 %

Biopharmaceuticals

The decrease in revenues for Biopharmaceuticals was primarily due to the accelerated recognition of previously deferred revenue in the prior period upon the mutual terminations of collaborations with Castle Creek and Oragenics in 2020.

Segment Adjusted EBITDA declined as we had increased costs associated with the advancement of our clinical and preclinical programs.

Revenues for Exemplar increased due to an increase in services performed resulting from a higher demand from existing and new customers.

Revenues also increased due to price increases as well as a change in the pricing structure with certain customers.

The improvement in Segment Adjusted EBITDA was primarily due to the increased revenues and reduced costs as a result of operational efficiencies gained through reductions in workforce and improved inventory management.

Revenues for Trans Ova increased primarily due to higher customer demand for pregnant cows and more procedures performed as a result of stronger beef and dairy industries in the current year.

Revenues also increased due to a change in the pricing structure with certain customers.

The improvement in Segment Adjusted EBITDA was primarily due to the increased revenues, as well as reduced costs as a result of operational efficiencies gained through reductions in workforce and improved inventory management.

Unallocated Corporate Costs

Unallocated corporate costs decreased primarily due to decreased legal fees associated with certain litigation matters, including our settlement with the SEC in the prior period, and due to a reduction of corporate employees as we scaled down our corporate functions to support our more streamlined organization.

Comparison of the year ended December 31, 2020 to the year ended December 31, 2019

For a comparison of our results of operations for the years ended December 31, 2020 and 2019, see "Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1, 2021.

As a result of the revision of our reportable segments and the definition of Segment Adjusted EBITDA in 2021, as discussed in "Notes to the Consolidated Financial Statements - Notes 2 and 18" appearing elsewhere in this Annual Report, the discussion of segment performance for the years ended December 31, 2020 and 2019, has been restated below to conform to the revised segment determination and revised calculation of Segment Adjusted EBITDA.

Segment performance

The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the years ended December 31, 2020 and 2019, for each of our reportable segments and for All Other segments combined, as well as unallocated corporate costs.

December 31, Dollar

Change Percent

(In thousands)

Segment Adjusted EBITDA:

Biopharmaceuticals $ (35,378) $ (44,552) $ 9,174 20.6 %

Exemplar 4,004 (1,586) 5,590 >200%

Trans Ova 13,530 (2,836) 16,366 >200%

All Other — (3,501) 3,501 100.0 %

Unallocated corporate costs (37,479) (46,007) 8,528 18.5 %

For a reconciliation of Segment Adjusted EBITDA to net loss from continuing operations before income taxes, see "Notes to the Consolidated Financial Statements - Note 18" appearing elsewhere in this Annual Report.

The following table summarizes revenues from external customers for the years ended December 31, 2020 and 2019, for each of our reportable segments and for All Other segments combined.

December 31, Dollar

Change Percent

(In thousands)

Biopharmaceuticals $ 21,780 $ 6,259 $ 15,521 >200%

Exemplar 10,158 6,958 3,200 46.0 %

Trans Ova 71,186 68,672 2,514 3.7 %

All Other — 4,873 (4,873) (100.0) %

Biopharmaceuticals

The increase in revenues for Biopharmaceuticals was primarily due to the accelerated recognition of previously deferred revenue upon the mutual terminations of collaborations with Castle Creek and Oragenics in 2020.

Segment Adjusted EBITDA improved due to higher costs for contract research organizations incurred in 2019 for preclinical activities on certain programs prior to moving to clinical trials and the manufacturing of clinical trial materials in advance of initiation of the trials.

Additionally, fewer costs related to the PRGN-3005 Phase 1 trials were incurred in the second quarter of 2020 as enrollment of new patients in this 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.

Additionally, fewer

AG019 trial costs were incurred in the second quarter of 2020 due to the temporary suspension of the last cohort of the Phase 1b/2a clinical trial.

Costs related to Biopharmaceutical's' clinical trials are expected to increase in 2021 as the trials progress and as we initiate new clinical trials for new clinical programs.

Finally, capital expenditures decreased in the current period as PGEN Therapeutics completed an expansion of its lab facilities in 2019.

Revenues for Exemplar increased due to an increase in services performed resulting from a higher demand from existing.

Revenues for Trans Ova increased primarily as a result of more procedures performed for new and existing customers and the expansion of its commercial dairy business.

The improvement in Segment Adjusted EBITDA was primarily due to operational efficiencies gained through reductions in workforce and improved inventory management, a decrease in the cost of cows used in production, and a reduction in third-party royalty rate obligations for certain licensed technologies.

Revenues in All Other decreased in 2020 as our partnered programs with Harvest start-up entities were paused since the third quarter of 2019.

Segment Adjusted EBITDA improved period over period as a result of the closure of two operating segments in 2019.

The increase in revenues for Biopharmaceuticals was primarily due to the fact that we obtained control of Intrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022 and therefore we recognized the remaining balance of deferred revenue associated with Intrexon Energy Partners and Intrexon Energy Partners II, less the amounts paid to acquire the membership interests of the investors.

See Note 5 for further detail.

Segment adjusted EBITDA is in line with previous year.

Revenues for Exemplar decreased due to a reduction in services performed with existing customers.

The deterioration in Segment Adjusted EBITDA was primarily due to the reduction in revenues and increase in personnel costs.

Unallocated Corporate Costs

Unallocated corporate costs decreased primarily due to a reduction of corporate employees as well as a decrease in certain professional fees as we scaled down our corporate functions to support our more streamlined organization.

These decreases were partially offset by an increase in legal fees associated with litigation matters, including our settlement with the SEC.

Unallocated corporate costs are in line with previous year.

The reduction in personnel expenses was offset by higher legal and professional services.

Liquidity and capital resources

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We have incurred losses from operations since our inception, and as of December 31, 2022, we had an accumulated deficit of $1.9 billion.

From our inception through December 31, 2021, we have funded our operations principally with proceeds received from private and public equity and debt offerings, cash received from our collaborators, and through product and service sales made directly to customers.

From our inception through December 31, 2022, we have funded our operations principally with proceeds received from private and public equity and debt offerings, cash received from our collaborators, and through product and service sales made directly to customers, and sales of non-core businesses.

As of December 31, 2022, we had cash and cash equivalents of $4.9 million and short-term and long-term investments of $51.1 million.

We also had restricted cash (short term) of $43.3 million at December 31, 2022.

This cash is restricted for the permitted purposes related to our Convertible Notes, including the resolution of such notes.

Cash in excess of immediate requirements is typically invested primarily in money market funds and United States government debt securities in order to maintain liquidity and preserve capital.

We currently generate cash receipts primarily from sales of products and services and from strategic transactions.

Trans Ova is subject to certain restrictive debt covenants under its line of credit which is discussed in "Notes to the Consolidated Financial Statements - Note 11" appearing elsewhere in this Annual Report.

As of December 31, 2021, Trans Ova was in compliance with these debt covenants.

In addition, in January 2023, we closed a public offering of 43,962,640 shares of our common stock, resulting in net proceeds to us of approximately $73.0 million, after deducting underwriting discounts, fees, and other underwriting expenses.

At-the-Market Sales Agreement

As disclosed in "Notes to the Consolidated Financial Statements - Note 13" appearing elsewhere in this Annual Report, on August 9, 2022, we entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co.

(the "Sales Agreement"), pursuant to which we may issue and sell from time to time shares of our common stock of up to $100 million.

We have no obligation to sell any of the Shares under the Sales Agreement, and may at any time suspend or terminate the offering of our common stock pursuant to the Sales Agreement upon notice and subject to other conditions.

We intend to use the proceeds of any sales under the Sales Agreement, if any sales are made, to fund the development of clinical and preclinical product candidates and for working capital and other general corporate purposes.

Capital Resources

The following table sets forth the significant sources and uses of cash for the periods set forth below:

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Effect of exchange rate changes on cash, cash equivalents, and restricted cash (827) 217 353

Net decrease in cash, cash equivalents, and restricted cash $ (8,907) $ (16,184) $ (41,748)

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 5,253 $ (8,907) $ (16,184)

Cash flows from operating activities:

In 2022, our net income was $28.3 million, which includes a gain on sale of discontinued operations of $94.7 million which is presented as an adjustment to net income to net cash used in operating activities.

Additional adjustments to reconcile net income to net cash used in operating activities netted to approximately $24.0 million, from both continuing and discontinued operations, with the most significant adjustments including:

(i) $10.2 million of stock-based compensation expense, (ii) $10.8 million of depreciation and amortization expense, and (iii) $1.0 million accretion of debt discount and amortization of deferred financing costs.

In addition, changes in operating assets and liabilities reduced net income by $22.7 million, which the most significant change being a reduction in deferred revenue of $23.4 million.

In 2021, our net loss was $92.2 million, which includes the following significant noncash expenses totaling $39.4 million from both continuing and discontinued operations:

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In 2020, our net loss was $170.5 million, which includes the following significant noncash expenses totaling $107.9 million from both continuing and discontinued operations:

(i) $27.0 million of accumulated foreign currency translation losses that were realized upon the closing of the Transactions, (ii) $23.0 million of impairment losses related to goodwill and long-lived assets, (iii) $18.4 million of stock-based compensation expense, (iv) $17.5 million of depreciation and amortization expense, (v) $11.4 million loss on settlement agreement with Harvest, and (vi) $10.6 million accretion of debt discount and amortization of deferred financing costs.

(i) $27.0 million of accumulated foreign currency translation losses that were realized upon the closing of the Transactions, (ii) $23.0 million of impairment losses related to goodwill and long-lived assets, (iii) $18.4 million of stock-based compensation expense, (iv) $17.5 million of depreciation and amortization expense, (v) $11.4 million loss on settlement agreement with Harvest Intrexon Enterprise Fund I, LP ("Harvest"), and (vi) $10.6 million accretion of debt discount and amortization of deferred financing costs.

These expenses were partially offset by the recognition of $12.8 million of previously deferred revenue upon the mutual terminations of collaboration agreements with Castle Creek and Oragenics in 2020.

In 2019, our net loss was $323.9 million, which includes the following significant noncash expenses totaling $191.0 million from both continuing and discontinued operations:

(i) $120.5 million of impairment loss, (ii) $24.9 million of depreciation and amortization expense, (iii) $19.0 million of stock-based compensation expense, (iv) $10.4 million of shares issued for payment of services, (v) $9.5 million accretion of debt discount and amortization of deferred financing costs, and (vi) $6.7 million of equity in net loss of affiliates.

These expenses were partially offset by $7.8 million of unrealized and realized appreciation on equity securities and preferred stock, net.

Our 2021 cash outflows from operations decreased $21.3 million from the year ended December 31, 2020 primarily due to (i) increased cash inflows provided by Trans Ova and Exemplar due to increased revenues and gross margins thereon, (ii) the reduction in cash requirements for MBP Titan as we suspended those operations in the second quarter of 2020, and (iii) reductions in operating expenses for our corporate operations as we streamlined operations in order to further prioritize the use of our capital.

Our 2020 cash outflows from operations decreased $58.9 million from the year ended December 31, 2019 primarily due to (i) the reduction in cash required to fund the businesses sold in the TS Biotechnology Sale, (ii) the reduction in cash requirements for MBP Titan as we wound down those operations starting in the second quarter of 2020, and (iii) reductions in operating expenses for our ActoBio and corporate operations as we streamlined both in order to further prioritize the use of our capital.

Our 2022 cash outflows used in operations increased $9.3 million from the year ended December 31, 2021 primarily due to decreased cash flow from operations provided by Trans Ova (which was sold in August 2022) and Exemplar.

reduction in cash requirements for MBP Titan as we suspended those operations in the second quarter of 2020, and (iii) reductions in operating expenses for our corporate operations as we streamlined operations in order to further prioritize the use of our capital.

Cash flows from investing activities:

During 2022, we received $68.4 million proceeds during the year from the maturities and sales of investments and $162.3 million from the sale of Trans Ova.

During 2021, we purchased $174.2 million of investments, primarily using the $121.0 million of proceeds received from the underwritten public offering discussed below.

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We also reinvested a portion of the $133.0 million proceeds we received during the year from the maturities of investments.

During 2019, we received proceeds of $111.4 million from the maturities and sales of investments, net of purchases;

$21.6 million proceeds from the sale of our AquaBounty securities, and we used $37.9 million for purchases of property, plant and equipment.

Cash flows from financing activities:

During 2022, we repurchased Convertible Notes for $154.7 million, Additionally, in January and February 2023, we made additional repurchases of Convertible Notes of $15.5 million.

During 2021, we received $121.0 million proceeds from the sale of our common stock in an underwritten public offering

During 2020, we received $35.0 million proceeds from the sale of our common stock in a private placement to TS Biotechnology.

During 2019, we received $6.6 million in net proceeds from underwritten public offerings completed by AquaBounty.

Future capital requirements

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Our future capital requirements will depend on many factors, including:

• progress in our research and development programs, as well as the magnitude of these programs;

• progress in our research and development programs, as well as the magnitude and speed of development of these programs;

• any delays or potential delays to our clinical trials as a result of the COVID-19 pandemic;

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Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

If we raise additional funds through strategic transactions, collaborations, or licensing arrangements with third parties, we may have to relinquish valuable rights to

our technologies, future revenue streams, research programs, or product candidates, or to grant licenses on terms that may not be favorable to us.

If we raise additional funds through strategic transactions, collaborations, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or to grant licenses on terms that may not be favorable to us.

We are subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates.

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Our success is dependent upon our ability to continue to raise additional capital in order to fund ongoing research and development, adequately satisfy or renegotiate long-term debt obligations, obtain regulatory approval of our products, successfully commercialize our products, generate revenue, meet our obligations, and, ultimately, attain profitable operations.

Our ability to achieve what is necessary for our success may be negatively impacted by the uncertainty caused by the COVID-19 pandemic.

See the section entitled "Risk Factors" for additional risks associated with our substantial capital requirements.

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(1) See "Notes to the Consolidated Financial Statements - Note 11" appearing elsewhere in this Annual Report for further discussion of our convertible debt.

In addition to the obligations in the table above, as of December 31, 2021 we also have the following significant contractual obligations described below.

In conjunction with the formation of our JVs, we committed to making future capital contributions subject to certain conditions and limitations.

As of December 31, 2021, our remaining capital contribution commitments to our JVs were $14.2 million.

These future capital contributions are not included in the table above due to the uncertainty of the timing and amounts of such contributions.

We are party to in-licensed research and development agreements with various academic and commercial institutions where we could be required to make future payments for annual maintenance fees as well as for milestones and royalties we might receive upon commercial sales of products that incorporate their technologies.

In addition to the obligations in the table above, as of December 31, 2022 we are party to in-licensed research and development agreements with various academic and commercial institutions where we could be required to make future payments for annual maintenance fees as well as for milestones and royalties we might receive upon commercial sales of products that incorporate their technologies.

These agreements are generally subject to termination by us and therefore no amounts are included in the tables above.

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Net operating losses

As of December 31, 2021, we had net operating loss carryforwards of approximately $856.4 million for United States federal income tax purposes available to offset future taxable income, including $603.7 million generated after 2017, United States capital loss carryforwards of $212.5 million, and United States federal and state research and development tax credits of approximately $11.1 million, prior to consideration of annual limitations that may be imposed under Section 382.

As of December 31, 2022, we had net operating loss carryforwards of approximately $819.1 million for United States federal income tax purposes available to offset future taxable income, including $604.2 million generated after 2017, United States capital loss carryforwards of $212.5 million, and United States federal and state research and development tax credits of

approximately $12.1 million, prior to consideration of annual limitations that may be imposed under Section 382.

Net operating loss carryforwards generated prior to 2018 begin to expire in 2022, and capital loss carryforwards will expire if unutilized beginning in 2024.

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Options to acquire additional services are considered to determine if they constitute material rights.

Contingent manufacturing services that may be provided under certain of our agreements are considered to be a separate future contract and not part of the current collaboration or licensing agreement.

Contingent manufacturing services that may be

provided under certain of our agreements are considered to be a separate future contract and not part of the current collaboration or licensing agreement.

At contract inception, we determine 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 us for research and development efforts;

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The purpose is to provide the collaborator with assurance that we will complete our 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 us.

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 nonoccurence of a future event that is not substantially within the control of the collaborator or us.

From time to time, we and certain collaborators may cancel our agreements, relieving us of any further performance obligations under the agreement.

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Product and service revenues

Our product and service revenues are generated primarily through Trans Ova and include sales of advanced reproductive technologies, including our bovine embryo transfer and IVF 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.

Our product and service revenues are generated primarily through Exemplar, it generates product and service revenues through the development and sale of genetically engineered miniature swine models.

We evaluate each promised product or service under our contracts and identify performance obligations for each distinct product or services.

We then allocate the transaction price of the contract to each performance obligation, recognizing 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.

We typically recognize revenue using an out-based measure, generally time elapsed or days of service, to measure progress and transfer of the control of the performance obligation to the customer.

Payment terms are typically due within 30 days of invoicing, which occurs prior to or when revenue is recognized.

We recognized $12.0 million, $13.3 million, and $10.1 million of product and service revenues for the years ended December 31, 2022, 2021, and 2020, respectively.

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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 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.

Goodwill is tested for impairment annually, or more frequently if events or circumstances between annual tests indicate that the assets may be impaired.

We 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 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.

Goodwill is tested for impairment annually at December 31, or more frequently if events or circumstances between annual tests indicate that the assets may be impaired.

If this is the case, the quantitative goodwill impairment test is required.

If the quantitative goodwill impairment test is required or elected to be performed, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill).

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When we perform quantitative evaluations, 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 income approach is a valuation technique in which fair value is based on 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 our 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, we compare the sum of the reporting units' fair values to our market capitalization (per share stock price times the number of shares outstanding) and calculate an implied control premium (the excess of the sum of the reporting units' fair values over the market capitalization) and then assess the reasonableness of our implied control premium.

During the years ended December 31, 2021 and 2020, we recorded $0.5 million and $0.9 million, respectively, of impairment charges from continuing operations to write down the values of other long-lived assets.

During the years ended December 31, 2022 and 2021, we recorded $1.1 million and $0.5 million, respectively, of impairment charges from continuing operations to write down the values of goodwill and other long-lived assets.

See additional discussion regarding these impairments in "Notes to the Consolidated Financial Statements - Note 9" appearing elsewhere in this Annual Report.

Research and Development Expense, Including Clinical Trial Accruals/Expenses

We consider that regulatory requirements inherent in the research and development of new products preclude us from capitalizing such costs.

Research and development costs consist of salaries and related costs of research and development personnel, including stock-based compensation expense, costs to acquire technology rights, contract research organizations and consultants, facilities, materials and supplies associated with research and development projects as well as various laboratory studies.

Clinical trial expenses are a significant component of research and development expense, and we outsource a significant portion of these costs to third parties.

Third party clinical trial expenses include investigator fees, site and patient costs, CRO costs, costs for central laboratory testing, and data management costs.

The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs.

These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties.

Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as a prepaid expenses and other or other accrued liabilities .

These third party agreements are generally cancellable, and related costs are recorded as research and development expense as incurred.

Non-refundable advance clinical payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed.

When evaluating the adequacy of the accrued expenses, we analyze progress of the studies, including the phase or completion of

events, invoices received and contracted costs.

Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period.

Actual results could differ from the estimates made.

The historical clinical accrual estimates have not been materially different from the actual costs.

Recent accounting pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis