Germantown, Maryland, USA
March 2, 2018

Intrexon Corporation (NYSE: XON), a leader in the engineering and industrialization of biology to improve the quality of life and health of the planet, today announced its fourth quarter and full year financial results for 2017.

2017 Business Highlights

• Intrexon's energy team achieved cash positive scalable yields in two multibillion-dollar hydrocarbons from its Methane Bioconversion Platform (MBP), along with increasing yields on other targets;
• Precigen, a wholly owned subsidiary, commenced a therapeutic vaccine program based on its AdenoVerse™ platform and established a generalized system for Point of Care CAR-T cells that, based on in vitro and in vivo studies, offers the promise of outperforming currently available approaches, at considerably lower COGS.  Additionally, the team has developed numerous therapeutic candidates targeting not only cancer but also autoimmune and infectious targets, while preparing for the commencement of multiple clinical trials in 2018;
• In connection with its planned evolution, Intrexon decentralized its organization to consist of a 'core Intrexon' (consisting of its purely scientific units) and a number of enterprises with management structures designed to drive shareholder value through commercialization, including through partnering transactions or potential spin out transaction, shifting the emphasis of Intrexon's business model away from partnering early stage programs and focusing on the partnering of mature programs and platforms;
• Partnering programs were commenced and are ongoing on four mature programs or platforms, including MBP and Intrexon Crop Protection;
• Collaborator Ziopharm Oncology, Inc. (Nasdaq: ZIOP) announced the dosing of the first patient in a Phase 1 study of its gene therapy Ad-RTS-hIL-12 + veledimex for the treatment of pediatric brain tumors.  Additionally, Ziopharm's Phase 1 trial of CD33-specific chimeric antigen receptor T cell (CAR-T) therapy targeting relapsed or refractory acute myeloid leukemia is enrolling patients;
• Xogenex, a majority-owned subsidiary of Precigen, was authorized by the U.S. Food and Drug Administration (FDA) to commence its Phase 1 trial of the gene therapy INXN-4001, which we believe is the world's first multigene cardiac therapeutic candidate expressing proteins from three effector genes for the treatment of heart disease;
• Collaborator Fibrocell Science, Inc. (NASDAQ: FCSC) obtained allowance from the FDA to initiate enrollment of pediatric patients in the Phase 2 portion of its Phase 1/2 clinical trial of FCX-007, its gene therapy candidate for the treatment of recessive dystrophic epidermolysis bullosa (RDEB) – a devastating, genetic skin disease with high mortality.  Fibrocell also announced submission of an Investigational New Drug Application (IND) with the FDA for FCX-013, its gene therapy candidate for the treatment of moderate to severe localized scleroderma; 
• Okanagan Specialty Fruits (OSF), a wholly owned subsidiary of Intrexon, announced its non-browning Arctic® Fuji apple has been approved by the Canadian Food Inspection Agency and Health Canada. Arctic® Fuji trees will join the growing commercial orchards of Arctic® Golden and Arctic® Granny apples in spring 2018.  OSF planted 266,000 apple trees in 2017 and anticipates the planting of over 600,000 trees in 2018;
• Intrexon Crop Protection achieved a key research milestone and received a milestone payment in its collaboration with a leading agricultural company developing an eco-friendly fall armyworm solution utilizing Oxitec's self-limiting insect technology. Native to the Americas, fall armyworm has become increasingly invasive in a range of geographies globally, spreading to at least 28 countries in Africa alone, causing an estimated $13.8 billion in losses of maize, sorghum, rice and sugarcane;
• During 2017, while exceeding all operational goals, Trans Ova Genetics, a wholly owned subsidiary, initiated pregnancies that are gestating its first genetically engineered bovine and porcine livestock targeted for agricultural purposes. Trans Ova's bioengineering focus is on improvements to animal health and animal welfare that will provide benefits to both animals and farmers;
• EnviroFlight, LLC, Intrexon's joint venture with Darling Ingredients Inc. (NYSE: DAR), is underway with construction of the largest domestic commercial-scale black soldier fly (BSF) larvae production facility, which is expected to open in the second half of 2018, expanding production of advanced BSF ingredients for sustainable animal feed and nutrition; and
• Intrexon entered into a collaboration with Arch Pharmalabs, Ltd. for development of microbial strains for fermentative production of an active pharmaceutical ingredient that is currently sourced from animals.

Recent Developments:

• Intrexon structured its principal healthcare assets into two separate wholly owned subsidiaries – Precigen, Inc., a gene and cell therapy company developing precision medicines, and ActoBio Therapeutics, Inc., a company focused, via its proprietary ActoBiotics® platform, on therapeutic delivery of biologics to the site of disease – reflecting their distinct technological and market characteristics and aligning these businesses with management structures to drive shareholder value;
• Precigen partnered with a major medical center to employ a point-of-care approach using non-viral-based CAR-T immunotherapy for cancer, in which reduced manufacturing time (as short as two days) combined with distributed production is intended to enable faster time to treatment and lower therapeutic costs. First patient dosing is expected in the second quarter of 2018, and Precigen intends to partner with additional medical centers to employ this approach;
• Collaborator Intrexon T1D Partners, LLC, filed an IND with the FDA to clinically investigate a combination therapy of oral ActoBiotics® therapeutic candidate AG019 with a mAb to interrupt and reverse the onset of type 1 diabetes;
• Intrexon produced 2,3 Butanediol of 99%+ purity at pilot scale utilizing its proprietary MBP technology platform, and the material was sent to catalyst providers for test conversion to 1,3 Butadiene. Intrexon utilized the pilot plant data to complete the FEL-2 engineering package detailing a production facility with an annual capacity of approximately 40,000 tons; and
• Intrexon sold 6,900,000 shares of its common stock in an underwritten public offering at a public offering price of $12.50 per share, including the exercise in full by the underwriters of their option to purchase an additional 900,000 shares of common stock. Gross proceeds to Intrexon from the offering were approximately $86.3 million before deducting the underwriting discount and other offering expenses payable by Intrexon.

Fourth Quarter 2017 Financial Highlights:

• Total revenues of $77.0 million, an increase of 67% over the fourth quarter of 2016;
• Net loss of $27.3 million attributable to Intrexon, or $(0.23) per basic share, including non-cash charges of $41.5 million;
• Adjusted EBITDA of $13.7 million, or $0.11 per basic share;
• The net change in deferred revenue related to upfront and milestone payments, which represents the cash and stock received from collaborators less the amount of revenue recognized during the period, was a decrease of $39.1 million compared to a decrease of $11.3 million in the fourth quarter of 2016; and
• Cash, cash equivalents, and short-term investments totaled $74.4 million, the value of preferred shares totaled $161.2 million, and the value of common equity securities totaled $15.1 million at December 31, 2017.

Full Year 2017 Financial Highlights:

• Total revenues of $231.0 million, an increase of 21% over the full year ended December 31, 2016;
• Net loss of $117.0 million attributable to Intrexon, or $(0.98) per basic share, including non-cash charges of $107.5 million;
• Adjusted EBITDA of $(11.8) million, or $(0.10) per basic share; and
• The net change in deferred revenue related to upfront and milestone payments, which represents the cash and stock received from collaborators less the amount of revenue recognized during the period, was a decrease of $67.3 million compared to a net increase of $116.5 million in the full year ended December 31, 2016.

"Intrexon always has intended to be a leader in the field of industrialized biotechnology, by focusing on technology solutions that are more advanced than where most others are investing and making these technologies and their benefits tangibly real," commented Randal J. Kirk, Chairman and Chief Executive Officer of Intrexon.  "We began with the belief that rationally designed, complex transgenes will be superior to tiny gene programs that can be constructed by almost anyone who tries to do so.  In our long-held view, the number of high value problems that can be solved with a single gene, for example, are very limited and, even if successful, then very easily duplicated.  Further, we realized years ago that gene programs often will require real-time control features in order to regulate their activity.

"As we developed those capabilities, we learned that host cell and organism expertise is a necessary requirement in order to know how to construct and test complex gene programs – and realize their advantages -- in real-world situations.  One may analogize this to a programming language (the gene program) and an operating system (that of the host cell).  Deep expertise in both is essential if one will succeed in advancing functional solutions to complex biological problems.  Today, we believe that we are the world leaders in the design and construction of multigenic, controllable gene programs and that we have achieved host expertise in 51 expression host species with additional expertise in diverse cell types across organisms, from the methanotroph to any of several human cells.  Importantly, we observe that our original view is becoming more widely recognized as examples of simple gene programming have become appreciated, along with their limitations.

"Because we believed the opportunity space for our technology was vast and the fact that we did not have infinite capital, we went into business in 2011 with a model we refer to as the Exclusive Channel Collaboration.  In essence, we formed collaborations with parties in which they paid Intrexon upfront fees, milestone payments and participating economics, as well as fees for our work on behalf of the collaborative product.  This model allowed us, in a manner that was capital-sparing for Intrexon, to investigate a multitude of opportunities, many of which have proven out very well thus far both for Intrexon and our collaborators. It always was our intention, however, once we had them, to partner late stage products and platforms rather than early stage work.  Indeed, late stage assets are worth much more than the promise of an interesting early stage program and we would rather work on early stage programs in-house and out of the limelight.

"In 2017 we began this transition.  We were enabled in this by several events, among them being (1) the quality of the Intrexon scientific leadership and our fine scientists in labs in the Americas and Europe, (2) our achievement of technical success in several projects that had been the labor of years of effort, (3) the interest being shown in these mature programs by large incumbent companies and (4) the maturation of several of our target marketplaces so that our offerings can be better comprehended in context."

Mr. Kirk concluded, "We realize that it has been painful for many who have invested in Intrexon's shares but we are determined that 2018 will be a year of vindication for those who have made this journey with us.  We lead in several categories that others did not realize would even be categories when we began our work, and we intend to make the most of our advantages."

Fourth Quarter 2017 Financial Results Compared to Prior Year Period
Total revenues increased $31.0 million, or 67%, from the quarter ended December 31, 2016. Collaboration and licensing revenues increased $28.5 million from the quarter ended December 31, 2016 primarily due to the recognition of previously deferred revenue totaling $28.9 million related to the Company's collaboration with ZIOPHARM for the treatment of graft-versus-host disease, which was mutually terminated in December 2017. Product revenues were comparable to the quarter ended December 31, 2016. Gross margin on products increased slightly in the current period primarily due to lower cost of cows. Service revenues increased $2.4 million, or 23%, due to an increase in the number of bovine in vitro fertilization cycles performed due to higher customer demand. Gross margin on services decreased slightly in the current period primarily due to an increase in royalties and commissions due to vendors.

Research and development expenses increased $9.5 million, or 33%, due primarily to increases in (i) lab supplies and consulting expenses and (ii) depreciation and amortization. Lab supplies and consulting expenses increased $4.9 million as a result of (i) the progression of certain programs into the preclinical and clinical phases with certain of Intrexon's collaborators and (ii) the expansion or improvement of certain of the Company's platform technologies. Depreciation and amortization increased $1.5 million primarily as a result of (i) the amortization of developed technology acquired from Oxitec, which began in November 2016 upon the completion of certain operational and regulatory events, and (ii) the amortization of developed technology acquired from GenVec in June 2017.  As a result of the Company's assessment of the recoverability of goodwill and intangible assets acquired in previous acquisitions, the Company recorded an impairment charge of $16.8 million in the fourth quarter of 2017.  Of this amount, $13.0 million was attributable to the write off of goodwill related to the AquaBounty subsidiary, which was based primarily on the fair value of the Company's holdings in AquaBounty after consideration of the closing of a public financing by AquaBounty in January 2018.

Total other expense, net, decreased $3.6 million, or 41%. This change was primarily attributable to changes in the fair value of the Company's equity securities and preferred stock portfolio for the period.

Full Year 2017 Financial Results Compared to Prior Year Period
Total revenues increased $40.1 million, or 21%, over the year ended December 31, 2016. Collaboration and licensing revenues increased $35.7 million, or 33%, over the year ended December 31, 2016, primarily due to (i) the recognition of previously deferred revenue totaling $28.9 million related to the Company's collaboration with ZIOPHARM for the treatment of graft-versus-host disease, which was mutually terminated in December 2017 and (ii) a full year of recognition of deferred revenue associated with the payment received in June 2016 from ZIOPHARM to amend the collaborations between the parties. Product revenues decreased $3.4 million, or 9%, primarily due to lower customer demand for cows and live calves. Gross margin on products improved slightly in the current period primarily due to a decline in the average cost of cows. Service revenues increased $7.6 million, or 18%, due to an increase in the number of bovine in vitro fertilization cycles performed due to higher customer demand. Gross margin on services decreased slightly in the current period primarily due to an increase in royalties and commissions due to vendors.

Research and development expenses increased $31.1 million, or 28%, due primarily to increases in (i) lab supplies and consulting expenses, (ii) salaries, benefits and other personnel costs for research and development employees, (iii) depreciation and amortization, and (iv) rent and utilities expenses. Lab supplies and consulting expenses increased $11.3 million as a result of (i) the progression of certain programs into the preclinical and clinical phases with certain of Intrexon's collaborators and (ii) the expansion or improvement of certain of the Company's platform technologies. Salaries, benefits and other personnel costs increased $8.0 million due to an increase in research and development headcount necessary to invest in current or expanding platforms and to develop new prospective collaborations and other partnering opportunities. Depreciation and amortization increased $5.8 million primarily as a result of (i) the amortization of developed technology acquired from Oxitec, which began in November 2016 upon the completion of certain operational and regulatory events, and (ii) the amortization of developed technology acquired from GenVec in June 2017. Rent and utilities expenses increased $3.3 million due to the expansion of certain facilities to support the Company's increased headcount. Selling general and administrative expenses increased $3.8 million, or 3%. Salaries, benefits and other personnel costs increased $4.2 million primarily due to increased headcount to support the Company's expanding operations. Legal and professional fees increased $4.2 million primarily due to (i) increased legal fees to defend ongoing litigation and to support our evolving corporate strategy and (ii) consulting fees related to potential business opportunities and public relations. These increases were partially offset by $4.3 million in litigation expenses recorded in the prior period arising from the entrance of a court order in Trans Ova Genetics, L.C.'s trial with XY, LLC. As a result of the Company's assessment of the recoverability of goodwill and intangible assets acquired in previous acquisitions, the Company recorded an impairment charge of $16.8 million in the fourth quarter of 2017.  Of this amount, $13.0 million was attributable to the write off of goodwill related to the AquaBounty subsidiary which was based primarily on the fair value of the Company's holdings in AquaBounty after consideration of the closing of a public financing by AquaBounty in January 2018.

Total other income (expense), net, increased $70.3 million, or 147%. This increase was primarily attributable to (i) the change in fair market value of the Company's equity securities portfolio, investments in preferred stock and other convertible instruments and (ii) a full year of dividend income from the Company's investment in preferred stock of ZIOPHARM.

Equity in net loss of affiliates, which includes the Company's pro-rata share of the net losses of its investments accounted for using the equity method of accounting, decreased $6.8 million, or 32%. This decrease was primarily due to the temporary redeployment of certain of the Company's resources away from joint venture programs towards supporting prospective new platforms and additional collaborations.

Website: http://www.dna.com

Published: March 2, 2018