Derivative Financial Instruments

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

13.

Derivative Financial Instruments

The Company determined that certain embedded features related to the Series 1 preferred stock were derivative financial instruments. The company values the embedded derivative financial instruments related to the Series 1 preferred stock as Level 3 financial liabilities (Note 3).

On October 5, 2018, the Company entered into the License Agreement with PGEN. In partial consideration for the termination of the former agreements, the Company and PGEN agreed that Precigen would forfeit all outstanding shares of the Series 1 preferred stock held by Precigen, including any accrued dividends and related financial instruments. Thus, upon closing of the transaction, these derivative financial instruments were no longer outstanding (Note 7).

The change in the derivative liability for the years ended December 31, 2020, 2019, and 2018 consists of the following:


	Fair Value
Balance, December 31, 2017	$	2,424
Dividends		223
Change in fair value		(158	)
Settlement of a related party relationship		(2,489	)

Balance, December 31, 2018	$	—
Dividends		—
Change in fair value		—

Balance, December 31, 2019	$	—
Dividends		—
Change in fair value		—

Balance, December 31, 2020	$	—

The fair value of the Series 1 preferred stock dividends was estimated using a probability-weighted approach and a Monte Carlo simulation model. The fair value of the embedded derivatives was estimated using the “with” and “without” method where the preferred stock was first valued with all of its features (“with” scenario)

and

then without derivatives subject to the valuation analysis (“without” scenario). The fair value of the derivatives was then estimated as the difference between the fair value of the preferred

stock

in the “with” scenario and the preferred stock in the “without” scenario. The model also takes into account, management estimates of clinical success/failure based upon market studies and probability of potential conversion and liquidation events. If these estimates were different, the valuations would

change

, and that change could be material. Inputs to the models included the following:


	December 31,
	2018
Risk-free interest rate		2.50 - 3.13%
Expected dividend rate		0
Expected volatility		77.6 - 82.4%
Preferred stock conversion limit - percentage of outstanding common stock		19.90%
Preferred conversion floor price	$	1.00