PRECIGEN, INC. The following "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q, or Quarterly Report, and our Annual Report on Form 10-K for the year endedDecember 31, 2020 , or Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates, expectations, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements and you are cautioned not to place undue reliance on forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report, particularly in "Special Note Regarding Forward-Looking Statements" and "Risk Factors." The forward-looking statements included in this Quarterly Report are made only as of the date hereof. Overview We are a dedicated discovery and clinical-stage biopharmaceutical company advancing the next generation of gene and cell therapies with the overall goal of improving outcomes for patients with significant unmet medical needs. We are leveraging our proprietary technology platforms to develop product candidates designed to target urgent and intractable diseases in our core therapeutic areas of immuno-oncology, autoimmune disorders, and infectious diseases. We have developed an extensive pipeline of therapies across multiple indications within these core focus areas. We believe that our array of technology platforms uniquely positions us among other biotechnology companies to advance precision medicine. Precision medicine is the practice of therapeutic product development that takes into account specific genetic variations within populations impacted by a disease to design targeted therapies to improve outcomes for a disease or patient population. Our proprietary and complementary technology platforms provide a strong foundation to realize the core promise of precision medicine by supporting our efforts to construct powerful gene programs to drive efficacy, deliver these programs through viral, non-viral, and microbe-based approaches to drive lower costs, and control gene expression to drive safety. Our therapeutic platforms, including UltraCAR-T, AdenoVerse immunotherapy, and ActoBiotics, are designed to allow us to precisely control the level and physiological location of gene expression and modify biological molecules to control the function and output of living cells to treat underlying disease conditions. We are actively advancing our lead clinical programs, including: PRGN-3005 and PRGN-3006, which are built on our UltraCAR-T platform; PRGN-2009 and PRGN-2012, which are based on our AdenoVerse immunotherapy platform; and AG019, which is built on our ActoBiotics platform. In addition, we have completed a Phase 1 study of INXN-4001, a non-viral triple-effector plasmid DNA, which is built on our UltraVector platform. We also have a robust pipeline of preclinical programs that we are pursuing in order to drive long-term value creation. We have developed a proprietary electroporation device, UltraPorator, designed to further streamline and ensure the rapid and cost-effective manufacturing of UltraCAR-T therapies. InOctober 2020 , we announced that UltraPorator receivedU.S. Food and Drug Administration , or FDA, clearance for manufacturing UltraCAR-T cells in clinical trials, and inNovember 2020 , we announced that we have begun dosing patients with UltraCAR-T cells manufactured with UltraPorator in our PRGN-3005 and PRGN-3006 clinical trials. We exercise discipline in our portfolio management by systematically evaluating data from our preclinical programs in order to make rapid "go" and "no go" decisions. Through this process, we believe we can more effectively allocate resources to programs that we believe show the most promise and advance such programs to clinical trials. Our Healthcare Business Our healthcare business focuses on human therapeutics and developing research models and services for healthcare research applications. Our Biopharmaceuticals segment includes our wholly owned subsidiariesPGEN Therapeutics, Inc. , or PGEN Therapeutics, andPrecigen ActoBio, Inc. , or ActoBio, and our majority ownership interest inTriple-Gene LLC , doing business as Precigen Triple-Gene, or Triple-Gene, as well as royalty interests in therapeutics and therapeutic platforms from companies not controlled by us.Exemplar Genetics LLC , doing business as Precigen Exemplar, or Exemplar, is a wholly owned subsidiary which is focused on developing research models and services for healthcare research applications. 36 -------------------------------------------------------------------------------- Table of Contents Biopharmaceuticals PGEN Therapeutics PGEN Therapeutics is a dedicated discovery and clinical stage biopharmaceutical company advancing the next generation of gene and cell therapies using precision technology to target urgent and intractable diseases in immuno-oncology, autoimmune disorders and infectious diseases. PGEN Therapeutics operates as an innovation engine, progressing a preclinical and clinical pipeline of well-differentiated therapies toward clinical proof-of-concept and commercialization. PGEN Therapeutics is developing therapies primarily built on our UltraCAR-T therapeutics platform and our "off-the-shelf" AdenoVerse immunotherapy platform. Through our UltraCAR-T therapeutics platform, we are able to precision-engineer UltraCAR-T cells to produce a homogeneous cell product that simultaneously expresses antigen-specific chimeric antigen receptor, or CAR, kill switch, and our proprietary membrane-bound interleukin-15, or mbIL15, genes in any genetically modified UltraCAR-T cell. Our decentralized and rapid proprietary manufacturing process allows us to manufacture UltraCAR-T cells overnight at a medical center's current good manufacturing practices facility and reinfuse the patient the following day after gene transfer. This process improves upon current approaches to CAR-T manufacturing, which require extensive ex vivo expansion following viral vector transduction to achieve clinically relevant cell numbers that we believe can result in the exhaustion of CAR-T cells prior to their administration, limiting their potential for persistence in patients. We have developed a proprietary electroporation device, UltraPorator, designed to further streamline and ensure the rapid and cost-effective manufacturing of UltraCAR-T therapies. The UltraPorator system includes proprietary hardware and software solutions and potentially represents major advancements over current electroporation devices by significantly reducing the processing time and contamination risk. UltraPorator is intended to be a viable scale-up and commercialization solution for decentralized UltraCAR-T manufacturing. Our AdenoVerse immunotherapy platform utilizes a library of proprietary adenovectors for the efficient gene delivery of therapeutic effectors, immunomodulators, and vaccine antigens. We have established proprietary manufacturing cell lines and production methodologies from our AdenoVerse immunotherapy platform, which we believe are easily scalable for commercial supply. We believe that our proprietary gorilla adenovectors, part of the AdenoVerse technology, have superior performance characteristics as compared to current competition, including standard human adenovirus serotype 5, rare human adenovirus types and other non-human primate adenovirus types. The most advanced programs within PGEN Therapeutics are as follows: PRGN-3005 is a first-in-class, investigational autologous CAR-T therapy that utilizes our UltraCAR-T platform to simultaneously express a CAR targeting the unshed portion of the Mucin 16 antigen, mbIL15, and kill switch genes. PRGN-3005 is currently being evaluated in a Phase 1/1b clinical trial for the treatment of advanced, recurrent platinum-resistant ovarian cancer, fallopian tube or primary peritoneal cancer. A dose escalation phase of the intraperitoneal (IP) arm of the PRGN-3005 Phase 1 trial is ongoing, and an expansion phase is planned at the maximum tolerated dose, or MTD. A dose escalation phase of the intravenous (IV) arm of the PRGN-3005 trial is ongoing concurrently with the IP arm. PRGN-3006 is a first-in-class, investigational autologous CAR-T therapy that utilizes our UltraCAR-T platform to express a CAR to target CD33 (Siglec-3), mbIL15 and kill switch genes. PRGN-3006 is currently being evaluated in an investigator-initiated Phase 1/1b clinical trial for the treatment of relapsed or refractory acute myeloid leukemia, or AML, higher-risk myelodysplastic syndromes, or MDS, and chronic myelomonocytic leukemia, or CMML. A dose escalation phase of each of the non-lymphodepletion and the lymphodepletion arms of this Phase 1 trial is ongoing concurrently. The dose escalation phase of each arm is planned to be followed by an expansion phase at the MTD. PRGN-3006 was granted Orphan Drug designation for the treatment of AML by the FDA. PRGN-2009 is a first-in-class, "off-the-shelf" investigational immunotherapy designed to activate the immune system to recognize and target human papillomavirus-positive, or HPV+, solid tumors. PRGN-2009 leverages our UltraVector and AdenoVerse platforms to optimize HPV type 16 and HPV type 18, antigen design for delivery via a proprietary gorilla adenovector with a large genetic payload capacity and the ability for repeat administrations. PRGN-2009 is in a Phase 1/2 clinical trial as a monotherapy or in combination with bintrafusp alfa, or M7824, an investigational bifunctional fusion protein, for patients with HPV-associated cancers in collaboration with theNational Cancer Institute , or NCI, pursuant to a cooperative research and development arrangement, or CRADA. PRGN-2012 is a first-in-class, investigational "off-the-shelf" AdenoVerse immunotherapy for the treatment of recurrent respiratory papillomatosis, or RRP. PRGN-2012 is an innovative therapeutic vaccine with optimized antigen design that uses our gorilla adenovector technology to elicit immune responses directed against cells infected with HPV type 6 and HPV type 11. PRGN-2012 is in a Phase 1 clinical trial for adult patients with RRP. PRGN-2012 is being developed in collaboration with theCenter for Cancer Research at the NCI pursuant to a CRADA. PRGN-2012 was granted Orphan Drug designation for treatment of RRP by the FDA. 37 -------------------------------------------------------------------------------- Table of Contents In addition to our clinical programs, PGEN Therapeutics has a robust pipeline of preclinical programs that we are pursuing in order to drive long-term value creation. Our pipeline includes a number of product candidates, including UltraCAR-T therapeutics for various cancers, and "off-the-shelf" AdenoVerse immunotherapy for infectious disease, and a multifunctional therapeutic for solid tumors. We expect to continue development of various preclinical programs to identify product candidates for evaluation in clinical trials.Precigen ActoBio, Inc. ActoBio is pioneering a proprietary class of microbe-based biopharmaceuticals that enable expression and local delivery of disease-modifying therapeutics. We refer to these microbe-based biopharmaceuticals as ActoBiotics. Our ActoBiotics platform is a unique delivery platform precisely tailored for specific disease modification with the potential for superior efficacy and safety. ActoBiotics combine the advantages of highly selective protein-based therapeutic agents with local delivery by the well-characterized and food-grade bacterium Lactococcus lactis, or L. lactis. ActoBiotics can be delivered orally in a capsule, through an oral rinse, or in a topical solution. We believe ActoBiotics have the potential to provide superior safety and efficacy via the sustained release of appropriate quantities of select therapeutic agents as compared to injectable biologics, while reducing the side effects commonly attributed to systemic delivery and corresponding peaks in concentration. ActoBio's most advanced internal pipeline candidate, AG019, is a first-in-class disease modifying antigen-specific, investigational immunotherapy for the prevention, delay, or reversal of type 1 diabetes mellitus, or T1D. AG019 is an easy-to-take capsule formulation of ActoBiotics engineered to deliver the autoantigen human proinsulin, or PINS, and the tolerance-enhancing cytokine human interleukin-10 to the mucosal lining of gastro-intestinal tissues in patients with T1D. AG019 is currently in a Phase 1b/2a clinical trial for the treatment of early-onset T1D. The Phase 1b portion of the study evaluates the safety and tolerability of AG019 monotherapy administered as a single dose and repeated daily doses in adult and adolescent patients. The Phase 2a portion of the study investigates the safety and tolerability of AG019 in combination with teplizumab, or PRV-031. Enrollment and dosing in the Phase 1b and Phase 2a portions of the study are complete. The primary endpoint of assessing safety and tolerability in both the Phase 1b monotherapy and the Phase 2a combination arms of the study was met. No dose-related adverse events or serious adverse events were reported in either portion of this trial. Interim data presented showed an encouraging trend in C-peptide levels, a biomarker for T1D disease progression, at six months after AG019 monotherapy treatment initiation. Furthermore, AG019 monotherapy induced antigen-specific tolerance in conjunction with the reduction of disease-specific T cell responses six months post treatment initiation. Data from the Phase 2a portion showed that the combination was well-tolerated and the preliminary data at six months after treatment initiation showed an encouraging trend in C-peptide levels compared to baseline levels. The combination of AG019 and teplizumab showed the induction of antigen-specific tolerance in conjunction with reduction of disease-specific T cell responses at six months post treatment initiation. Precigen Triple-Gene Triple-Gene is a clinical stage gene therapy company focused on developing advanced treatments for complex cardiovascular diseases. Triple-Gene's approach is to develop a holistic treatment for heart failure through improvements in angiogenesis, calcium homeostasis-associated cellular energetics, reductions in inflammatory signals, and the activation/recruitment of stem cells to support heart remodeling. Triple-Gene's most advanced candidate, INXN-4001, a non-viral triple-effector plasmid based on our UltraVector platform designed for constitutive expression of human S100A1, SDF-1a, and VEGF-165, is engineered to address multiple pathways of heart failure. Utilizing a single plasmid comprising all three genes, instead of each individual gene on separately delivered plasmids, INXN-4001 can control for delivery and ensure expression of the three genes in all transfected cells. A first-in-human, open label Phase 1 trial designed to evaluate the safety of retrograde coronary sinus infusion, or RCSI, of INXN-4001 in outpatient left ventricular assist device, or LVAD, recipients has been completed. Six-month follow-up data demonstrated that the study met the primary endpoints to evaluate safety and feasibility for INXN-4001. Partnered Program We have partnered withCastle Creek Biosciences, Inc. , or Castle Creek, to advance product candidates D-Fi (debcoemagene autoficel), formerly designated FCX-007, for the treatment of recessive dystrophic epidermolysis bullosa, or RDEB, and FCX-013 for the treatment of localized scleroderma. InOctober 2020 , Castle Creek announced the dosing of the first patient in the ongoing Phase 3 trial of D-Fi and the dosing of the first patient in the ongoing Phase 1/2 trial of FCX-013. The FDA has granted Orphan Drug designation to D-Fi for the treatment of Dystrophic Epidermolysis Bullosa, which includes RDEB. In addition, D-Fi has been granted Rare Pediatric Disease designation, Fast Track designation, and Regenerative Medicine Advanced Therapy designation by the FDA for treatment of RDEB. The FDA has granted Orphan Drug designation to FCX-013 for the treatment of localized scleroderma. In addition, FCX-013 has been granted Rare Pediatric Disease designation and Fast Track designation for the treatment of moderate to severe localized scleroderma. Pursuant to the collaboration, we licensed our technology platforms to Castle Creek for use in certain specified fields, and in exchange, we received and were 38 -------------------------------------------------------------------------------- Table of Contents entitled to certain access fees, milestone payments, royalties, and sublicensing fees related to the development and commercialization of product candidates. InMarch 2020 , we and Castle Creek terminated the original collaboration agreement by mutual agreement, with the parties agreeing that FCX-007 and FCX-013 would be treated as "Retained Products" under the terms of the original agreement. Castle Creek retains a license to continue to develop and commercialize the Retained Products within the field of use for so long as Castle Creek continues to pursue such development and commercialization, and we are also entitled to certain royalties with respect to the Retained Products. We are also required to perform certain drug product manufacturing activities related to the Retained Products. Precigen Exemplar Exemplar is committed to enabling the study of life-threatening human diseases through the development of MiniSwine Yucatan miniature pig research models and services, as well as enabling the production of cells and organs in its genetically engineered swine for regenerative medicine applications. Historically, researchers have lacked animal models that faithfully represent human diseases. As a result, a sizeable barrier has blocked progress in the discovery of human disease mechanisms; novel diagnostics, procedures, devices, prevention strategies and therapeutics; and the ability to predict in humans the efficacy of those next-generation procedures, devices, and therapeutics. Exemplar's MiniSwine models are genetically engineered to exhibit a wide variety of human disease states, which provides a more accurate platform to test the efficacy of new medications and devices. Our Non-Healthcare Business AtJune 30, 2021 , our only non-healthcare business is our established bovine genetics company,Trans Ova Genetics, L.C ., or Trans Ova. Trans Ova Trans Ova is internationally recognized as a provider of industry-leading bovine reproductive technologies. Trans Ova offers bovine embryo transfer technologies, in addition to other advanced reproductive technologies, including in vitro fertilization, or IVF, sexed-semen, genetic preservation, and cloning. Through extensive research programs and applied science, Trans Ova has developed and implemented new technologies that, we believe, have helped to move the science of bovine genetic improvement forward. We continue to evaluate the optimal means to utilize these technology assets and Trans Ova's broad customer base and deep industry knowledge to maximize the value of the business. COVID-19 Impact COVID-19 has had and continues to have an extensive impact on the global health and economic environments. The health and safety of our employees is of the utmost importance. Our essential employees are practicing appropriate safety measures, including social distancing and use of personal protective equipment. These efforts have permitted us to continue to advance our programs, with the ultimate goal of benefiting patients. Commencing in the second half ofMarch 2020 , our healthcare business began to experience delays to certain of our clinical trials as a result of COVID-19. For example, starting inMarch 2020 , we 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, our 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 inJune 2020 , and recruitment in the study resumed. Additionally, from April toMay 2020 , enrollment of new patients in our PRGN-3005 Phase 1 trial was temporarily suspended due to a mandated hold on certain early and late-stage clinical trials at theFred Hutchinson Cancer Research Center inSeattle that was instituted in light of the COVID-19 pandemic. Recruitment resumed in the PRGN-3005 trial inMay 2020 . Although these suspensions did not result in significant overall delay, there is uncertainty regarding the duration and severity of the ongoing pandemic, and we could experience further delays of other pandemic-related events that may adversely impact our clinical as well as preclinical pipeline candidates in the future. Notwithstanding the foregoing, as the COVID-19 pandemic continues to evolve, we may experience additional delays to our clinical trials, including related to enrollment, site closures, reduced availability of key personnel, or our ability to receive the necessary approvals from the FDA or other regulatory agencies to advance our programs. We are also closely monitoring the impact of COVID-19 on other aspects of our business. While Trans Ova and Exemplar have not experienced any significant impacts as a result of COVID-19 at this time, we are unable to reliably quantify or estimate what the future impacts may be. 39 -------------------------------------------------------------------------------- Table of Contents Given the dynamic nature of these circumstances, the full impact of the COVID-19 pandemic on our ongoing business, results of operations, and overall financial performance cannot be reasonably estimated at this time. For more information regarding the risks associated with COVID-19 and its impact on our business, see "Risk Factors" in Part II - Item 1A. Discontinued Operations Historically, we developed technology platforms for application across a variety of diverse end markets, including health, food, energy, and environment. InJanuary 2020 , we announced that we were increasing our focus on our healthcare opportunities, which reflected our most advanced platforms, and in connection therewith, we divested a number of our non-healthcare assets (referred to collectively as the Transactions) and changed our name toPrecigen, Inc. In 2020, as a result of market uncertainty driven by the COVID-19 pandemic and the state of the energy sector raising significant challenges for the strategic alternatives pursued byMBP Titan, LLC , or MBP Titan, our methane bioconversion business, we suspended MBP Titan's operations, preserved certain of MBP Titan's intellectual property, terminated all of its personnel, and undertook steps to dispose of its other assets and obligations. The wind down of MBP Titan's activities was substantially complete byDecember 31, 2020 , with the final disposition of certain property and equipment and the facility operating lease occurring inJanuary 2021 . This discontinuation of operations represented the continuation of a strategic shift that we commenced in early 2020 to becoming a primarily healthcare company advancing technologies and products that address complex healthcare challenges. After the wind down of MBP Titan, certain assets and contractual obligations which were originally related to MBP Titan continue to be managed at thePrecigen corporate level. These remaining assets and contractual obligations include our equity interests in and collaboration agreements withIntrexon Energy Partners, LLC , orIntrexon Energy Partners , andIntrexon Energy Partners II, LLC , or Intrexon Energy Partners II, including the associated deferred revenue remaining under each collaboration agreement, as well as the associated intellectual property. See also "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report for additional discussion of our discontinued operations. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 4" appearing elsewhere in this Quarterly Report for a discussion ofIntrexon Energy Partners and Intrexon Energy Partners II. Segments As ofJune 30, 2021 , our reportable segments were (i) Biopharmaceuticals, (ii) Exemplar, and (iii) Trans Ova. These identified reportable segments met the quantitative thresholds to be reported separately for the six months endedJune 30, 2021 . Corporate expenses, which are not allocated to the segments and are managed at a consolidated level, include costs associated with general and administrative functions, including our finance, accounting, legal, human resources, information technology, corporate communication, and investor relations functions. Corporate expenses exclude interest expense, depreciation and amortization, gain or loss on disposals of assets, stock-based compensation expense, loss on settlement agreement, and equity in net loss of affiliates. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 19" appearing elsewhere in this Quarterly Report for a discussion of our reportable segments and Segment Adjusted EBITDA. Financial overview We have incurred significant losses since our inception. We anticipate that we may continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability. Our historical collaboration and licensing revenues were generated under a business model from which we have gradually transitioned, and we do not expect to expend significant resources servicing our historical collaborations in the future. We may enter into strategic transactions for individual platforms or programs in the future from which we may generate new collaboration and licensing revenues. We continue to generate product and service revenues through our Trans Ova and Exemplar subsidiaries, and in the six months endedJune 30, 2021 , both of these subsidiaries generated positive Segment Adjusted EBITDA. Products currently in our clinical pipeline will require regulatory approval and/or commercial scale-up before they may commence significant product sales and operating profits. As we continue our efforts to focus our business and generate additional capital, we may be willing to enter into transactions involving one or more of our operating segments and reporting units for which we have goodwill and intangible assets. These efforts could result in us identifying impairment indicators or recording impairment charges in future periods. In addition, market changes and changes in judgements, assumptions, and estimates that we have made in assessing the fair value of goodwill could cause us to consider some portion or all of certain assets to become impaired. 40 -------------------------------------------------------------------------------- Table of Contents Sources of revenue Historically, we have derived our collaboration and licensing revenues through agreements with counterparties for the development and commercialization of products enabled by our technologies. Generally, the terms of these collaborations provide that we receive some or all of the following: (i) technology access fees upon signing; (ii) reimbursements of costs incurred by us for our research and development and/or manufacturing efforts related to specific applications provided for in the collaboration; (iii) milestone payments upon the achievement of specified development, regulatory and commercial activities; and (iv) royalties on sales of products arising from the collaboration. Our technology access fees and milestone payments may be in the form of cash or securities of the collaborator. Our collaborations contain multiple arrangements, and we typically defer revenues from the technology access fees and milestone payments received and recognize such revenues in the future over the anticipated performance period. We are also entitled to sublicensing revenues in those situations where our collaborators choose to license our technologies to other parties. As we continue to shift our focus on our healthcare business, we have and may continue to mutually terminate collaboration agreements or repurchase rights to the exclusive fields from collaborators, relieving us of any further performance obligations under the agreement. Upon such circumstances or when we determine no further performance obligations are required of us under an agreement, we may recognize any remaining deferred revenue as either collaboration revenue or as a reduction of operating expense, depending on the circumstances. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 5" appearing elsewhere in the Quarterly Report for a discussion of changes to our significant collaborations. 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. As we focus on our healthcare business, we anticipate that our expenses will increase substantially if, and as, we continue to advance the preclinical and clinical development of our existing product candidates and our research programs. We expect a significant period of time could pass before commercialization of our various product candidates or before the achievement of contractual milestones and the realization of royalties on product candidates commercialized under our collaborations and revenues sufficient to achieve profitability. Accordingly, there can be no assurance as to the timing, magnitude, and predictability of revenues to which we might be entitled. Cost of products and services Cost of products and services includes primarily labor and related costs, drugs and supplies used primarily in Trans Ova's embryo transfer and IVF processes, livestock and 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. Research and development expenses We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of: •salaries and benefits, including stock-based compensation expense, for personnel in research and development functions; •fees paid to consultants and contract research organizations who perform research on our behalf and under our direction; 41 -------------------------------------------------------------------------------- Table of Contents •costs related to laboratory supplies used in our research and development efforts and acquiring, developing, and manufacturing preclinical study and clinical trial materials; •costs related to certain in-licensed technology rights or reacquired in-process research and development; •amortization of patents and related technologies acquired in mergers and acquisitions; and •facility-related expenses, which include direct depreciation costs and unallocated expenses for rent and maintenance of facilities and other operating costs. Our research and development expenses are generally incurred by our reportable segments and primarily relate to either costs incurred to expand or otherwise improve our technologies or the costs incurred to develop our own products and services. Our Biopharmaceuticals segment is progressing preclinical and clinical programs that target urgent and intractable diseases in our core therapeutic areas of immuno-oncology, autoimmune disorders, and infectious diseases, including PRGN-3005, PRGN-3006, AG019, and INXN-4001. 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 condensed consolidated statements of operations for the three and six months endedJune 30, 2021 and 2020. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Biopharmaceuticals$ 13,121 $ 8,897 $ 23,184 $ 19,538 Exemplar 63 161 137 351 Trans Ova 502 454 887 1,094 Total research and development expenses from reportable segments 13,686 9,512 24,208 20,983 Other research and development expenses - (32) - (173) Eliminations (5) (6) (6) (9) Total consolidated research and development expenses$ 13,681
The amount of research and development expenses may be impacted by, among other things, the number and nature of our own proprietary programs, and the number and size of programs we may support on behalf of collaboration agreements. We expect that our research and development expenses will increase as we continue to develop our own proprietary programs, including progression of these programs into preclinical and clinical stages. We believe these increases will likely include increased costs paid to consultants and contract research organizations and increased costs related to laboratory supplies. Research and development expenses may also increase as a result of in-licensing of technologies or ongoing research and development operations that we might assume through mergers and acquisitions. Selling, general and administrative expenses Selling, general and administrative, or SG&A, expenses consist primarily of salaries and related costs, including stock-based compensation expense, for employees in executive, operational, finance, information technology, legal, and corporate communications functions. Other significant SG&A expenses include rent and utilities, insurance, accounting, and legal services (including the cost of settling any claims and lawsuits), and expenses associated with obtaining and maintaining our intellectual property. SG&A expenses may fluctuate in the future depending on the scaling of our corporate functions required to support our corporate initiatives and the outcomes of legal claims and assessments against us. Other income (expense), net Interest expense is expected to increase in future periods due to the noncash amortization of the long-term debt discount and debt issuance costs related to the 3.50% convertible senior notes due 2023 issued inJuly 2018 . 42 -------------------------------------------------------------------------------- Table of Contents 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. Equity in net income (loss) of affiliates Equity in net income or loss of affiliates is our pro-rata share of our equity method investments' operating results, adjusted for accretion of basis difference. We account for investments in our joint ventures, or 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 theHarvest Intrexon Enterprise Fund I, LP , or Harvest, using the equity method of accounting. InDecember 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 We use Segment Adjusted EBITDA as our primary measure of segment performance. We define Segment Adjusted EBITDA as net income (loss) before (i) interest expense, (ii) income tax expense or benefit, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) loss on settlement agreements where noncash consideration is paid, (vi) adjustments for accrued bonuses paid in equity awards, (vii) gain or loss on disposals of assets, (viii) loss on impairment of goodwill and other noncurrent assets, (ix) equity in net loss of affiliates, and (x) recognition of previously deferred revenue associated with upfront and milestone payments as well as cash outflows from capital expenditures and investments in affiliates, but includes proceeds from the sale of assets in the period sold. Corporate expenses are not allocated to the segments and are managed at a consolidated level. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 19" appearing elsewhere in this Quarterly Report for further discussion of Segment Adjusted EBITDA. 43 -------------------------------------------------------------------------------- Table of Contents Results of operations Comparison of the three months endedJune 30, 2021 and the three months endedJune 30, 2020 The following table summarizes our results of operations for the three months endedJune 30, 2021 and 2020, together with the changes in those items in dollars and as a percentage: Three Months Ended June 30, Dollar Percent 2021 2020 Change Change (In thousands) Revenues Collaboration and licensing revenues (1)$ 301 $ 4,315 $ (4,014) (93.0) % Product revenues 8,335 8,540 (205) (2.4) % Service revenues 24,803 17,381 7,422 42.7 % Other revenues 141 188 (47) (25.0) % Total revenues 33,580 30,424 3,156 10.4 % Operating expenses Cost of products 6,135 8,141 (2,006) (24.6) % Cost of services 8,898 6,770 2,128 31.4 % Research and development 13,681 9,474 4,207 44.4 % Selling, general and administrative 19,997 17,869 2,128 11.9 % Impairment of other noncurrent assets 543 - 543 N/A Total operating expenses 49,254 42,254 7,000 16.6 % Operating loss (15,674) (11,830) (3,844) 32.5 % Total other expense, net (4,449) (3,748) (701) 18.7 % Equity in loss of affiliates - (251) 251 (100.0) % Loss from continuing operations before income taxes (20,123) (15,829) (4,294) 27.1 % Income tax benefit 60 120 (60) (50.0) % Loss from continuing operations (20,063) (15,709) (4,354) 27.7 % Income (loss) from discontinued operations, net of income taxes (2) 13 (27,645) 27,658 100.0 % Net loss$ (20,050) $ (43,354) $ 23,304 (53.8) % (1)Includes$0 and$32 from related parties for the three months endedJune 30, 2021 and 2020, respectively. (2)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report. Collaboration and licensing revenues Collaboration and licensing revenues decreased$4.0 million , or 93%, from the three months endedJune 30, 2020 primarily due to a decrease in the recognition of previously deferred revenue in the current period resulting from fewer services being performed pursuant to aMarch 2020 termination agreement with Castle Creek. Product revenues and gross margin Product revenues were comparable to the three months endedJune 30, 2020 as expected. Gross margin on products improved in the current period as a result of increased focus on selling higher margin products, and operational efficiencies that have been gained through reductions in workforce and improved inventory management. 44 -------------------------------------------------------------------------------- Table of Contents Service revenues and gross margin Service revenues increased$7.4 million , or 43%, over the three months endedJune 30, 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 the pricing structure with certain customers. Research and development expenses Research and development expenses increased$4.2 million , or 44%, over the three months endedJune 30, 2020 . Contract research organization costs and lab supplies increased$3.8 million with the advancement of our clinical and preclinical programs. Selling, general and administrative expenses SG&A expenses increased$2.1 million , or 12%, over the three months endedJune 30, 2020 . Professional fees increased$1.8 million primarily due to an increase in legal fees associated with certain current litigation matters. Segment performance The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the three months endedJune 30, 2021 and 2020, for each of our reportable segments as well as unallocated corporate costs. Three Months Ended June 30, Dollar Percent 2021 2020 Change Change (In thousands) Segment Adjusted EBITDA: Biopharmaceuticals$ (12,540) $ (7,323) $ (5,217) (71.2) % Exemplar 1,889 607 1,282 >200% Trans Ova 12,012 8,125 3,887 47.8 % Unallocated corporate costs (10,052) (7,812) (2,240) 28.7 % For a reconciliation of Segment Adjusted EBITDA to net loss from continuing operations before income taxes, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 19" appearing elsewhere in this Quarterly Report. The following table summarizes revenues from external customers for the three months endedJune 30, 2021 and 2020, for each of our reportable segments. Three Months Ended June 30, Dollar Percent 2021 2020 Change Change (In thousands) Biopharmaceuticals$ 416 $ 4,460 $ (4,044) (90.7) % Exemplar 3,399 2,105 1,294 61.5 % Trans Ova 29,765 23,845 5,920 24.8 % Biopharmaceuticals The decrease in revenues for Biopharmaceuticals was primarily due to a decrease in the recognition of previously deferred revenue in the current period resulting from fewer services being performed pursuant to a termination agreement with Castle Creek. Segment Adjusted EBITDA declined as we had increased costs associated with the advancement of our clinical and preclinical programs. 45 -------------------------------------------------------------------------------- Table of Contents Exemplar 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. Trans Ova 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 increased primarily due to increased professional fees associated with certain current litigation matters. 46 -------------------------------------------------------------------------------- Table of Contents Comparison of the six months endedJune 30, 2021 and the six months endedJune 30, 2020 The following table summarizes our results of operations for the six months endedJune 30, 2021 and 2020, together with the changes in those items in dollars and as a percentage: Six Months Ended June 30, Dollar Percent 2021 2020 Change Change (In thousands) Revenues Collaboration and licensing revenues (1)$ 367 $ 15,036 $ (14,669) (97.6) % Product revenues 14,716 13,501 1,215 9.0 % Service revenues 42,734 31,327 11,407 36.4 % Other revenues 274 398 (124) (31.2) % Total revenues 58,091 60,262 (2,171) (3.6) % Operating expenses Cost of products 11,709 14,230 (2,521) (17.7) % Cost of services 16,300 14,306 1,994 13.9 % Research and development 24,202 20,801 3,401 16.4 % Selling, general and administrative 38,699 39,355 (656) (1.7) % Impairment of other noncurrent assets 543 - 543 N/A Total operating expenses 91,453 88,692 2,761 3.1 % Operating loss (33,362) (28,430) (4,932) 17.3 % Total other expense, net (8,654) (7,603) (1,051) 13.8 % Equity in loss of affiliates (3) (602) 599 (99.5) % Loss from continuing operations before income taxes (42,019) (36,635) (5,384) 14.7 % Income tax benefit 112 80 32 40.0 % Loss from continuing operations (41,907) (36,555) (5,352) 14.6 % Income (loss) from discontinued operations, net of income taxes (2) 4,539 (62,797) 67,336 107.2 % Net loss$ (37,368) $ (99,352) $ 61,984 (62.4) % (1)Includes$0 and$230 from related parties for the six months endedJune 30, 2021 and 2020, respectively. (2)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report. Collaboration and licensing revenues Collaboration and licensing revenues decreased$14.7 million , or 98%, from the six months endedJune 30, 2020 primarily due to the accelerated recognition of previously deferred revenue in the prior period upon the mutual termination of a collaboration with Castle Creek inFebruary 2020 . Product revenues and gross margin Product revenues increased$1.2 million , or 9%, over the six months endedJune 30, 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. 47 -------------------------------------------------------------------------------- Table of Contents Service revenues and gross margin Service revenues increased$11.4 million , or 36%, over the six months endedJune 30, 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. Research and development expenses Research and development expenses increased$3.4 million , or 16%, over the six months endedJune 30, 2020 . Contract research organization costs and lab supplies increased$3.8 million with the advancement of our clinical and preclinical programs. Selling, general and administrative expenses SG&A expenses were comparable period over period due to offsetting changes. Salaries, benefits, and other personnel costs decreased$1.6 million in 2021 primarily due to a reduced headcount as we scaled down our corporate functions to support our more streamlined organization and reduced stock compensation costs for previously granted awards that became fully vested in early 2021. These decreases were partially offset by an increase in professional fees associated with certain current litigation matters. Segment performance The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the six months endedJune 30, 2020 and 2020, for each of our reportable segments as well as unallocated corporate costs. Six Months Ended June 30, Dollar Percent 2021 2020 Change Change (In thousands) Segment Adjusted EBITDA: Biopharmaceuticals$ (21,394) $ (17,345) $ (4,049) (23.3) % Exemplar 3,695 857 2,838 >200% Trans Ova 18,433 7,668 10,765 140.4 % Unallocated corporate costs (18,246) (18,650) 404 (2.2) %
For a reconciliation of Segment Adjusted EBITDA to net loss from continuing
operations before income taxes, see "Notes to the Condensed Consolidated
Financial Statements (Unaudited) - Note 19" appearing elsewhere in this
Quarterly Report.
The following table summarizes revenues from external customers for the six
months ended
Six Months Ended
June 30, Dollar Percent
2021 2020 Change Change
(In thousands)
Biopharmaceuticals $ 594 $ 15,322 $ (14,728) (96.1) %
Exemplar 6,656 4,256 2,400 56.4 %
Trans Ova 50,841 40,630 10,211 25.1 %
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 termination of a collaboration with Castle Creek in February 2020 .
Segment Adjusted EBITDA declined as we had increased costs associated with the
advancement of our clinical and preclinical programs.
48
--------------------------------------------------------------------------------
Table of Contents
Exemplar
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.
Trans Ova
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 were comparable period over period due to offsetting
changes. Our unallocated corporate costs decreased from the prior period
primarily due to a reduction of corporate employees as we scaled down our
corporate functions to support our more streamlined organization. These
decreases were partially offset with increased professional fees associated with
certain current litigation matters.
Liquidity and capital resources
Sources of liquidity
We have incurred losses from operations since our inception, and as of June 30,
2021 , we had an accumulated deficit of $1.9 billion . From our inception through
June 30, 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.
As of June 30, 2021 , we had cash and cash equivalents of $36.4 million and
short-term and long-term investments of $164.0 million . Cash in excess of
immediate requirements is typically invested primarily in money market funds and
U.S. 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.
As of June 30, 2021 , Trans Ova was in compliance with the debt covenants
associated with its line of credit as discussed in "Notes to the Condensed
Consolidated Financial Statements (Unaudited) - Note 11" appearing elsewhere in
this Quarterly Report.
Cash flows
The following table sets forth the significant sources and uses of cash for the
periods set forth below:
Six Months Ended
June 30,
2021 2020
(In thousands)
Net cash provided by (used in):
Operating activities $ (24,160) $ (41,548)
Investing activities (112,482) (12,586)
Financing activities 121,063 32,891Effect of exchange rate changes on cash, cash equivalents, and restricted cash
184 (59)
Net decrease in cash, cash equivalents, and restricted cash $
(15,395)
Cash flows from operating activities: During the six months endedJune 30, 2021 , our net loss was$37.4 million , which includes the following significant noncash expenses totaling$21.6 million from both continuing and discontinued operations: (i)$9.0 million of stock-based compensation 49 -------------------------------------------------------------------------------- Table of Contents expense, (ii)$7.0 million of depreciation and amortization expense, and (iii)$5.6 million accretion of debt discount and amortization of deferred financing costs. These expenses were partially offset by a$4.6 million noncash gain recognized upon the termination of our MBP Titan facility lease inJanuary 2021 . During the six months endedJune 30, 2020 , our net loss was$99.4 million , which includes the following significant noncash expenses totaling$73.0 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)$22.0 million of impairment losses related to goodwill and long-lived assets, (iii)$9.6 million of depreciation and amortization expense, (iv)$9.3 million of stock-based compensation expense, and (v)$5.1 million accretion of debt discount and amortization of deferred financing costs. These expenses were partially offset by the recognition of$10.0 million of previously deferred revenue upon the mutual termination of a collaboration with Castle Creek inFebruary 2020 . Our cash outflows from operations during the six months endedJune 30, 2021 decreased$17.4 million from the six months endedJune 30, 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. Cash flows from investing activities: During the six months endedJune 30, 2021 , we purchased$116.2 million of investments, net of maturities and sales, primarily using the proceeds received from the underwritten public offering discussed below. During the six months endedJune 30, 2020 , we purchased$76.3 million of investments, net of maturities, primarily using the$64.2 million of proceeds received from the Transactions, net of cash sold, and the private placement discussed below. Cash flows from financing activities: During the six months endedJune 30, 2021 , we received$121.0 million net proceeds from the sale of our common stock in an underwritten public offering. During the six months endedJune 30, 2020 , we received$35.0 million proceeds from the sale of our common stock in a private placement toTS Biotechnology Holdings, LLC . Future capital requirements We believe our existing liquid assets will enable us to fund our operating expenses and capital requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including: •progress in our research and development programs, as well as the magnitude of these programs; •any delays or potential delays to our clinical trials as a result of the COVID-19 pandemic; •the timing of regulatory approval of our product candidates and those of our collaborations; •the timing, receipt, and amount of any payments received in connection with strategic transactions; •the timing, receipt, and amount of upfront, milestone, and other payments, if any, from present and future collaborators, if any; •the timing, receipt, and amount of sales and royalties, if any, from our product candidates; •the timing and capital requirements to scale up our various product candidates and service offerings and customer acceptance thereof; •our ability to maintain and establish additional collaborative arrangements and/or new strategic initiatives; 50 -------------------------------------------------------------------------------- Table of Contents •the resources, time, and cost required for the preparation, filing, prosecution, maintenance, and enforcement of our intellectual property portfolio; •strategic mergers and acquisitions, if any, including both the upfront acquisition cost as well as the cost to integrate, maintain, and expand the strategic target; •the costs associated with legal activities, including litigation, arising in the course of our business activities and our ability to prevail in any such legal disputes; and •the effects, duration, and severity of the ongoing COVID-19 pandemic and the actions we have taken or may take in response, any of which could significantly impact our business, operations, and financial results. Until such time, if ever, as we can regularly generate positive operating cash flows, we plan to finance our cash needs through a combination of equity offerings, debt financings, government, or other third-party funding, strategic alliances, sales of assets, and licensing arrangements. As the COVID-19 pandemic continues to negatively impact the economy, our future access to capital on favorable terms may be materially impacted. We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Our current stock price may make it more difficult to pursue equity financings and lead to substantial dilution if the price of our common stock does not increase. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through strategic transactions, collaborations, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or to grant licenses on terms that may not be favorable to us. We are subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development, and clinical manufacturing of its product candidates. Our success is dependent upon our ability to continue to raise additional capital in order to fund ongoing research and development, adequately satisfy or renegotiate long-term debt obligations, obtain regulatory approval of our products, successfully commercialize our products, generate revenue, meet our obligations, and, ultimately, attain profitable operations. Our ability to achieve what is necessary for our success may be negatively impacted by the uncertainty caused by the COVID-19 pandemic. See the section entitled "Risk Factors" in our Annual Report for additional risks associated with our substantial capital requirements. Contractual obligations and commitments The following table summarizes our significant contractual obligations and commitments from continuing operations as ofJune 30, 2021 and the effects such obligations are expected to have on our liquidity and cash flows in future periods: Less Than More Than Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years (In thousands) Operating leases$ 19,790 $ 3,344 $ 6,192 $ 4,945 $ 5,309
Convertible debt (1) 200,000 - 200,000 - - Cash interest payable on convertible debt 17,500 7,000 10,500 - - Long-term debt, excluding convertible debt 3,501 356 772 783 1,590 Total$ 240,791 $ 10,700 $ 217,464 $ 5,728 $ 6,899 (1)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Notes 11" appearing elsewhere in this Quarterly Report for further discussion of our convertible debt. 51 -------------------------------------------------------------------------------- Table of Contents In addition to the obligations in the table above, as ofJune 30, 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 ofJune 30, 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. These agreements are generally subject to termination by us and therefore no amounts are included in the tables above. As ofJune 30, 2021 , we also had research and development commitments with third parties totaling$17.0 million that had not yet been incurred. Net operating losses As ofJune 30, 2021 , we had net operating loss carryforwards of approximately$813.7 million forU.S. federal income tax purposes available to offset future taxable income, including$561.0 million generated after 2017,U.S. capital loss carryforwards of$211.5 million , andU.S. federal and state research and development tax credits of approximately$10.5 million , prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382. Net operating loss carryforwards generated prior to 2018 begin to expire in 2022, and capital loss carryforwards will expire if unutilized beginning in 2024. Our foreign subsidiaries included in continuing operations have foreign loss carryforwards of approximately$79.1 million , most of which do not expire. Excluding certain deferred tax liabilities totaling$2.7 million , our remaining net deferred tax assets, which primarily relate to these loss carryforwards, are offset by a valuation allowance due to our history of net losses. As a result of our past issuances of stock, as well as due to prior mergers and acquisitions, certain of our net operating losses have been subject to limitations pursuant to Section 382. As ofJune 30, 2021 ,Precigen has utilized all net operating losses subject to Section 382 limitations, other than those losses inherited via acquisitions. As ofJune 30, 2021 , approximately$42.1 million of domestic net operating losses were inherited via acquisitions and are limited based on the value of the target at the time of the transaction. Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation. Off-balance sheet arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined underSecurities and Exchange Commission , orSEC , rules. Critical accounting policies and estimates Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with generally accepted accounting principles inthe United States . The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report. Recent accounting pronouncements For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 2" appearing elsewhere in this Quarterly Report. 52
--------------------------------------------------------------------------------
© Edgar Online, source
