Mergers and Acquisitions

Trans Ova Acquisition

On August 8, 2014, the Company acquired 100% of the membership interests of Trans Ova, a provider of bovine reproductive technologies, pursuant to an Amended and Restated Membership Interest Purchase Agreement (the “Purchase Agreement”). Since the acquisition, Trans Ova has continued its operations. The Company and Trans Ova intend to build upon Trans Ova’s current platform with new capabilities with a goal of achieving higher levels of delivered value to dairy and beef cattle producers. Pursuant to the terms of the Amended and Restated Membership Interest Purchase Agreement, the former members of Trans Ova received an aggregate of 1,444,388 shares of the Company's common stock and $63,165 in cash, and will receive deferred cash consideration valued at $20,115 in exchange for all membership interests of Trans Ova. The deferred cash consideration is payable in three equal installments upon the first, second, and third anniversaries of the transaction date. The Purchase Agreement also provides for payment to the former members of Trans Ova of a portion of certain cash proceeds in the event there is an award under certain litigation matters pending as of the transaction date to which Trans Ova is a party. The results of Trans Ova's operations subsequent to August 8, 2014 have been included in the consolidated financial statements, including revenues of $8,502 and net loss of $373 for the three and nine months ended September 30, 2014.

The fair value of the total consideration transferred, including the noncontrolling interest in a majority-owned subsidiary of Trans Ova, was $123,519. The acquisition date fair value of each class of consideration transferred and noncontrolling interest is presented below:



Cash	$	63,165
Common shares	32,802
Deferred cash consideration	20,115
Total consideration transferred	116,082
Fair value of noncontrolling interest	7,437
Total	$	123,519

The fair value of the shares of the Company’s common stock issued was based on the quoted closing price of the Company’s common stock on August 8, 2014. The preliminary estimated fair value of assets acquired and liabilities assumed at the acquisition date is shown below:



Cash	$	960
Trade receivables	17,996
Related party receivables	1,219
Inventory	17,256
Prepaid expenses and other	590
Property, plant and equipment	18,686
Intangible assets	24,100
Other non-current assets	147
Total assets acquired	80,954
Accounts payable	3,317
Accrued compensation and benefits	913
Other accrued liabilities	271
Deferred revenue	2,420
Lines of credit	4,091
Related party payables	1,246
Long term debt	9,090
Total liabilities assumed	21,348
Net assets acquired	59,606
Goodwill	63,913
Total consideration	$	123,519

The fair value of assets acquired and liabilities assumed at the acquisition date are based on preliminary valuations and the estimates and assumptions are subject to change as the Company obtains additional information during the measurement period which may be up to one year from the acquisition date. The preliminary fair value of acquired inventory was determined using the cost approach, which establishes value based on the cost of reproducing or replacing the asset. The preliminary fair value of acquired property, plant and equipment was determined using the cost approach and the market approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The acquired intangible assets include various developed technologies and know-how, customer relationships, and trademarks, and the fair values of these assets were determined using the relief-from-royalty, multi-period excess earnings, and with-and-without methods, which are all variations of the income approach that convert future cash flows to single discounted present value amounts. The acquired intangible assets are being amortized over useful lives ranging from three to nine years. Goodwill, which is expected to be deductible for tax purposes, represents the assembled workforce, potential future expansion of Trans Ova business lines and anticipated buyer-specific synergies arising from the combination of the Company’s and Trans Ova’s technologies.

In conjunction with a prior transaction associated with Trans Ova’s subsidiary, ViaGen, in September 2012, the Company may be obligated to make certain future contingent payments to the former equity holders of ViaGen, up to a total of $6,000 if certain revenue targets, as defined in the share purchase agreement, are met. The Company does not expect these revenue targets to be met and accordingly has assigned no value to this liability.

As of September 30, 2014, the Company has incurred $684 of costs primarily for legal and financial administrative services related to this acquisition, of which $372 and $684 is included in the selling, general, and administrative expenses in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2014, respectively.

Medistem Acquisition

On March 6, 2014, the Company acquired 100% of the outstanding common stock and securities convertible into common stock of California-based Medistem, Inc. (“Medistem”), an entity engaged in the development of Endometrial Regenerative Cells (“ERCs”), for a combination of cash and Company common stock. The acquisition allows the Company to employ its synthetic biology platforms to engineer a diverse array of cell-based therapeutic candidates using Medistem’s multipotent ERCs. Pursuant to the terms of the merger agreement, Medistem equity holders received 714,144 shares of the Company’s common stock and $4,920 in cash in exchange for the outstanding Medistem common stock and securities convertible into common stock. Additionally, Medistem had issued the Company two promissory notes in the amount of $707, including accrued interest, which were settled upon closing of the merger. Certain members of Medistem’s management surrendered a total of 17,695 shares of their merger consideration to reimburse the Company for required payroll tax withholdings. The results of Medistem’s operations subsequent to March 6, 2014 have been included in the consolidated financial statements.

The fair value of the total consideration transferred was $24,995. The acquisition date fair value of each class of consideration transferred is presented below:



Cash	$	4,920
Common shares	19,368
Settlement of promissory notes	707
	$	24,995

The fair value of the shares of the Company’s common stock issued was based on the quoted closing price of the Company’s common stock on March 6, 2014. The preliminary estimated fair value of assets acquired and liabilities assumed at the acquisition date is shown below:



Cash	$	8
Intangible assets	4,824
Total assets acquired	4,832
Accounts payable	644
Accrued compensation and benefits	85
Other accrued expenses	150
Total liabilities assumed	879
Net assets acquired	3,953
Goodwill	21,042
Total consideration	$	24,995

The fair value of assets acquired and liabilities assumed at the acquisition date are considered preliminary and is subject to revision when the valuation of intangible assets is finalized. The preliminary fair value of acquired intangible assets was determined using the cost approach. The acquired intangible assets consist of in-process research and development, which is an indefinite-lived intangible asset. The goodwill consists of buyer-specific synergies between the Company’s and Medistem’s technologies present. The goodwill is not expected to be deductible for tax purposes.

As of September 30, 2014, the Company has incurred $680 of acquisition related costs, of which $310 is included in selling, general and administrative expenses in the accompanying consolidated statements of operations for the nine months ended September 30, 2014.

Unaudited Condensed Pro Forma Financial Information

The results of operations of the mergers and acquisitions discussed above are included in the consolidated statement of operations beginning on the day after the respective acquisition dates. The following unaudited condensed pro forma financial information for the three months ended September 30, 2014 and 2013 and the nine months ended September 30, 2014 and 2013 is presented as if each of the acquisitions had been consummated on January 1, 2013:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	Pro forma
Revenues	$	31,506		$	22,335		$	88,628		$	65,822
Loss before income taxes	(51,858		)	15,453			(98,745		)	(27,303		)
Net loss	(51,858		)	15,453			(98,768		)	(27,303		)
Net loss attributable to the noncontrolling interests	1,192			721			3,246			1,667
Net loss attributable to Intrexon	(50,666		)	16,174			(95,522		)	(25,636		)
Accretion of dividends on redeemable convertible preferred stock	—			(4,044		)	—			(18,391		)
Undistributed earnings allocated to preferred shareholders	—			(3,132		)	—			—
Net loss attributable to common shareholders	$	(50,666	)	$	8,998		$	(95,522	)	$	(44,027	)