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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number: 001-36042
 INTREXON CORPORATION
(Exact name of registrant as specified in its charter)
Virginia
 
26-0084895
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
20374 Seneca Meadows Parkway
Germantown, Maryland
 
20876
(Address of principal executive offices)
 
(Zip Code)
(301) 556-9900
(Registrant's telephone number, including area code) 
(Former name, former address and former fiscal year, if changed since last report date) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨ 
 
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, no par value
 
XON
 
Nasdaq Global Select Market
As of April 30, 2019, 160,764,358 shares of common stock, no par value per share, were outstanding.


Table of Contents

INTREXON CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 
Item No.
 
Page
1.
 
 
 
 
 
 
2.
3.
4.
 
1.
1A.
2.
3.
4.
5.
6.
 
Intrexon®, Trans Ova Genetics®, Oxitec®, EnviroFlight®, ViaGen®, ActoBiotics® and Design-Build-Test-Learn® are our and/or our affiliates' registered trademarks in the United States and AquaBounty™, Precigen™, Precigen Therapeutics™, Okanagan Specialty Fruits™, Progentus™, ActoBio Therapeutics™ and AquAdvantage™ are our and/or our affiliates' common law trademarks in the United States. This Quarterly Report on Form 10-Q, or Quarterly Report, and the information incorporated herein by reference contain references to trademarks, service marks and trade names owned by us or other companies. Solely for convenience, trademarks, service marks and trade names referred to in this Quarterly Report and the information incorporated herein, including logos, artwork, and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks and trade names. We do not intend our use or display of other companies' trade names, service marks or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Other trademarks, trade names and service marks appearing in this Quarterly Report are the property of their respective owners. Unless the context requires otherwise, references in this Quarterly Report to "Intrexon", "we", "us", and "our" refer to Intrexon Corporation.



2

Table of Contents


Special Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report regarding our strategy, future events, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words "anticipate", "believe", "estimate", "expect", "intend", "may", "plan", "predict", "project", "would", and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:
 
our strategy and overall approach to our business model;
our ability to successfully enter new markets or develop additional products, whether independently or with our collaborators;
our ability to successfully enter into optimal strategic relationships with our subsidiaries and operating companies that we may form in the future;
competition from existing technologies and products or new technologies and products that may emerge;
actual or anticipated variations in our operating results;
our current and future joint ventures, or JVs, exclusive channel collaborations, or ECCs, license agreements and other collaborations;
developments concerning our collaborators and licensees;
actual or anticipated fluctuations in our competitors' or our collaborators' and licensees' operating results or changes in their respective growth rates;
our cash position;
market conditions in our industry;
our ability to protect our intellectual property and other proprietary rights and technologies;
our ability to adapt to changes in laws, regulations and policies;
our ability and the ability of our collaborators and licensees to adapt to changes in laws, regulations and policies and to secure any necessary regulatory approvals to commercialize any products developed by us or under our ECCs, license agreements and JVs;
the ability of our collaborators and licensees to protect our intellectual property and other proprietary rights and technologies;
our ability and the ability of our collaborators and licensees to develop and successfully commercialize products enabled by our technologies;
the rate and degree of market acceptance of any products developed by us, our subsidiaries, a collaborator under an ECC, or through a JV or license under a license agreement;
our ability to retain and recruit key personnel;
the result of litigation proceedings or investigations that we currently face or may face in the future;
our expectations related to the use of proceeds from our public offerings and other financing efforts; and

3

Table of Contents

our estimates regarding expenses, future revenue, capital requirements, and need for additional financing.
Forward-looking statements may also concern our expectations relating to our subsidiaries and other affiliates. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in Part II, Item 1A. "Risk Factors," that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, JVs or investments that we may make.
You should read this Quarterly Report, the documents that we reference in this Quarterly Report, our Annual Report on Form 10-K for the year ended December 31, 2018, the other reports we have filed with the Securities and Exchange Commission, or SEC, and the documents that we have filed as exhibits to our filings with the SEC completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


4

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Intrexon Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited) 
(Amounts in thousands, except share data)
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
106,544

 
$
102,768

Restricted cash

 
6,987

Short-term investments
75,090

 
119,688

Equity securities
187

 
384

Receivables
 
 
 
Trade, net
19,859

 
21,195

Related parties, net
2,444

 
4,129

Other, net
2,578

 
2,754

Inventory
19,896

 
21,447

Prepaid expenses and other
5,577

 
6,131

Total current assets
232,175

 
285,483

Equity securities, noncurrent
1,602

 
1,798

Property, plant and equipment, net
136,357

 
128,874

Intangible assets, net
125,868

 
129,291

Goodwill
150,755

 
149,585

Investments in affiliates
17,627

 
18,859

Right-of-use assets
43,099

 

Other assets
2,381

 
2,287

Total assets
$
709,864

 
$
716,177

The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

Intrexon Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited) 
(Amounts in thousands, except share data)
March 31,
2019
 
December 31,
2018
Liabilities and Total Equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
12,601

 
$
13,420

Accrued compensation and benefits
7,784

 
10,687

Other accrued liabilities
14,096

 
20,620

Deferred revenue, including $8,024 and $6,945 from related parties as of March 31, 2019 and December 31, 2018, respectively
17,149

 
15,554

Lines of credit
277

 
466

Current portion of long-term debt
564

 
559

Current portion of lease liabilities
4,778

 

Related party payables
2,173

 
256

Total current liabilities
59,422

 
61,562

Long-term debt, net of current portion, including $55,515 and $55,290 to related parties as of March 31, 2019 and December 31, 2018, respectively
214,010

 
211,235

Deferred revenue, net of current portion, including $50,620 and $52,227 from related parties as of March 31, 2019 and December 31, 2018, respectively
54,042

 
54,210

Lease liabilities, net of current portion
40,185

 

Deferred tax liabilities, net
6,720

 
7,213

Other long-term liabilities
662

 
3,235

Total liabilities
375,041

 
337,455

Commitments and contingencies (Note 16)

 

Total equity
 
 
 
Common stock, no par value, 200,000,000 shares authorized as of March 31, 2019 and December 31, 2018; 160,615,416 and 160,020,466 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

Additional paid-in capital
1,732,608

 
1,722,012

Accumulated deficit
(1,391,254
)
 
(1,330,545
)
Accumulated other comprehensive loss
(28,325
)
 
(28,612
)
Total Intrexon shareholders' equity
313,029

 
362,855

Noncontrolling interests
21,794

 
15,867

Total equity
334,823

 
378,722

Total liabilities and total equity
$
709,864

 
$
716,177

The accompanying notes are an integral part of these consolidated financial statements.

6

Table of Contents

Intrexon Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
 
(Amounts in thousands, except share and per share data)
Three Months Ended 
 March 31,
2019
 
2018
Revenues
 
 
 
Collaboration and licensing revenues, including $3,812 and $16,640 from related parties during the three months ended March 31, 2019 and 2018, respectively
$
5,970

 
$
19,848

Product revenues
4,857

 
7,152

Service revenues
11,383

 
12,247

Other revenues
1,125

 
419

Total revenues
23,335

 
39,666

Operating Expenses
 
 
 
Cost of products
8,290

 
8,530

Cost of services
7,092

 
6,783

Research and development
33,062

 
37,267

Selling, general and administrative
33,594

 
39,737

Total operating expenses
82,038

 
92,317

Operating loss
(58,703
)
 
(52,651
)
Other Income (Expense), Net
 
 
 
Unrealized and realized appreciation (depreciation) in fair value of equity securities and preferred stock, net
70

 
(1,096
)
Interest expense
(4,311
)
 
(99
)
Interest and dividend income
1,364

 
5,470

Other income (expense), net
506

 
(659
)
Total other income (expense), net
(2,371
)
 
3,616

Equity in net loss of affiliates
(1,640
)
 
(2,460
)
Loss before income taxes
(62,714
)
 
(51,495
)
Income tax benefit
578

 
4,086

Net loss
$
(62,136
)
 
$
(47,409
)
Net loss attributable to the noncontrolling interests
1,427

 
1,244

Net loss attributable to Intrexon
$
(60,709
)
 
$
(46,165
)
Net loss attributable to Intrexon per share, basic and diluted
$
(0.40
)
 
$
(0.36
)
Weighted average shares outstanding, basic and diluted
152,948,058

 
127,693,336

The accompanying notes are an integral part of these consolidated financial statements.


7

Table of Contents

Intrexon Corporation and Subsidiaries
Consolidated Statements of Comprehensive Loss
(Unaudited)
 
 
Three Months Ended 
 March 31,
(Amounts in thousands)
2019
 
2018
Net loss
$
(62,136
)
 
$
(47,409
)
Other comprehensive income (loss):
 
 
 
Unrealized gain on investments
47

 
2

Gain on foreign currency translation adjustments
285

 
5,860

Comprehensive loss
(61,804
)
 
(41,547
)
Comprehensive loss attributable to the noncontrolling interests
1,382

 
1,303

Comprehensive loss attributable to Intrexon
$
(60,422
)
 
$
(40,244
)
The accompanying notes are an integral part of these consolidated financial statements.


8

Table of Contents

Intrexon Corporation and Subsidiaries
Consolidated Statements of Shareholders' and Total Equity
(Unaudited)
 
(Amounts in thousands, except share data)
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Intrexon
Shareholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Shares
 
Amount
 
 
 
 
 
 
Balances at December 31, 2018
160,020,466

 
$

 
$
1,722,012

 
$
(28,612
)
 
$
(1,330,545
)
 
$
362,855

 
$
15,867

 
$
378,722

Stock-based compensation expense

 

 
8,990

 

 

 
8,990

 
64

 
9,054

Shares issued upon vesting of restricted stock units and for exercises of stock options and warrants
286,637

 

 
57

 

 

 
57

 
250

 
307

Shares issued for accrued compensation
150,908

 

 
1,102

 

 

 
1,102

 

 
1,102

Shares issued as payment for services
157,405

 

 
831

 

 

 
831

 

 
831

Shares issued in public offerings, net of issuance costs

 

 

 

 

 

 
6,611

 
6,611

Adjustments for noncontrolling interests

 

 
(384
)
 

 

 
(384
)
 
384

 

Net loss

 

 

 

 
(60,709
)
 
(60,709
)
 
(1,427
)
 
(62,136
)
Other comprehensive income

 

 

 
287

 

 
287

 
45

 
332

Balances at March 31, 2019
160,615,416

 
$

 
$
1,732,608

 
$
(28,325
)
 
$
(1,391,254
)
 
$
313,029

 
$
21,794

 
$
334,823

The accompanying notes are an integral part of these consolidated financial statements

9

Table of Contents

Intrexon Corporation and Subsidiaries
Consolidated Statements of Shareholders' and Total Equity
(Unaudited)
 
(Amounts in thousands, except share data)
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Intrexon
Shareholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Shares
 
Amount
 
 
 
 
 
 
Balances at December 31, 2017
122,087,040

 
$

 
$
1,397,005

 
$
(15,554
)
 
$
(847,820
)
 
$
533,631

 
$
12,914

 
$
546,545

Cumulative effect of adoption of ASC 606

 

 

 
(104
)
 
26,611

 
26,507

 

 
26,507

Stock-based compensation expense

 

 
11,340

 

 

 
11,340

 
22

 
11,362

Shares issued upon vesting of restricted stock units and for exercises of stock options and warrants
21,722

 

 
74

 

 

 
74

 
250

 
324

Shares issued as payment for services
230,614

 

 
2,941

 

 

 
2,941

 

 
2,941

Shares and warrants issued in public offerings, net of issuance costs
6,900,000

 

 
82,374

 

 

 
82,374

 
5,616

 
87,990

Adjustments for noncontrolling interests

 

 
(818
)
 

 

 
(818
)
 
818

 

Net loss

 

 

 

 
(46,165
)
 
(46,165
)
 
(1,244
)
 
(47,409
)
Other comprehensive income (loss)

 

 

 
5,921

 

 
5,921

 
(59
)
 
5,862

Balances at March 31, 2018
129,239,376

 
$

 
$
1,492,916

 
$
(9,737
)
 
$
(867,374
)
 
$
615,805

 
$
18,317

 
$
634,122

The accompanying notes are an integral part of these consolidated financial statements


10

Table of Contents

Intrexon Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended 
 March 31,
(Amounts in thousands)
2019
 
2018
Cash flows from operating activities
 
 
 
Net loss
$
(62,136
)
 
$
(47,409
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
6,577

 
8,382

Loss on disposal of assets, net
493

 
316

Unrealized and realized (appreciation) depreciation on equity securities and preferred stock, net
(70
)
 
1,096

Noncash dividend income
(12
)
 
(4,883
)
Amortization of premiums (discounts) on investments, net
(352
)
 

Equity in net loss of affiliates
1,640

 
2,460

Stock-based compensation expense
9,054

 
11,362

Shares issued as payment for services
831

 
2,941

Provision for bad debts
64

 
218

Accretion of debt discount and amortization of deferred financing costs
2,213

 

Deferred income taxes
(508
)
 
(4,074
)
Other noncash items
247

 
127

Changes in operating assets and liabilities:
 
 
 
Receivables:
 
 
 
Trade
1,306

 
1,856

Related parties
1,584

 
4,729

Other
642

 
(215
)
Inventory
1,381

 
231

Prepaid expenses and other
(322
)
 
1,062

Right-of-use assets
1,462

 

Other assets
13

 
(47
)
Accounts payable
(1,237
)
 
(764
)
Accrued compensation and benefits
(1,788
)
 
4,851

Other accrued liabilities
(6,129
)
 
(2,473
)
Deferred revenue
1,330

 
(9,623
)
Lease liabilities
(1,433
)
 

Related party payables
1,916

 
(165
)
Other long-term liabilities

 
134

Net cash used in operating activities
(43,234
)
 
(29,888
)
The accompanying notes are an integral part of these consolidated financial statements.

11

Table of Contents

Intrexon Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

 
Three Months Ended 
 March 31,
(Amounts in thousands)
2019
 
2018
Cash flows from investing activities
 
 
 
Maturities of investments
45,000

 
6,000

Proceeds from sales of equity securities
418

 

Investments in affiliates
(370
)
 
(5,510
)
Return of investment in affiliate

 
2,598

Purchases of property, plant and equipment
(11,523
)
 
(10,774
)
Proceeds from sale of assets
67

 
230

Net cash provided by (used in) investing activities
33,592

 
(7,456
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of shares and warrants in public offerings, net of issuance costs
6,611

 
87,990

Advances from lines of credit
1,408

 
1,239

Repayments of advances from lines of credit
(1,597
)
 
(1,151
)
Proceeds from long-term debt, net of issuance costs
376

 

Payments of long-term debt
(178
)
 
(140
)
Proceeds from stock option and warrant exercises
307

 
324

Net cash provided by financing activities
6,927

 
88,262

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(504
)
 
914

Net increase (decrease) in cash, cash equivalents, and restricted cash
(3,219
)
 
51,832

Cash, cash equivalents, and restricted cash
 
 
 
Beginning of period
110,182

 
75,545

End of period
$
106,963

 
$
127,377

The accompanying notes are an integral part of these consolidated financial statements.

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Intrexon Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

 
Three Months Ended 
 March 31,
(Amounts in thousands)
2019
 
2018
Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
77

 
$
82

Cash paid during the period for income taxes
30

 
20

Significant noncash financing and investing activities
 
 
 
Purchases of property and equipment included in accounts payable and other accrued liabilities
$
2,531

 
$
2,016

Purchases of equipment financed through debt

 
76

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of March 31, 2019 and December 31, 2018 as shown above:
 
March 31,
2019
 
December 31,
2018
Cash and cash equivalents
$
106,544

 
$
102,768

Restricted cash

 
6,987

Restricted cash included in other assets
419

 
427

Cash, cash equivalents, and restricted cash
$
106,963

 
$
110,182

The accompanying notes are an integral part of these consolidated financial statements.

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Intrexon Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except share and per share data)
1. Organization
Intrexon Corporation ("Intrexon"), a Virginia corporation, uses synthetic biology to focus on programming biological systems to alleviate disease, remediate environmental challenges, and provide sustainable food and industrial chemicals, which may be accomplished directly or through collaborations and joint ventures. Intrexon's primary domestic operations are in California, Florida, Maryland, and Virginia, and its primary international operations are in Hungary. There have been no commercialized products derived from Intrexon's collaborations to date.
Precigen, Inc. ("Precigen"), a dedicated discovery and clinical stage biopharmaceutical company advancing the next generation of gene and cellular therapies using precision technology to target urgent and intractable diseases in immuno-oncology, autoimmune disorders, and infectious diseases, is a wholly owned subsidiary of Intrexon with primary operations in Maryland.
ActoBio Therapeutics, Inc. ("ActoBio") is pioneering a new class of microbe-based biopharmaceuticals that enable expression and local delivery of disease-modifying therapeutics and is a wholly owned subsidiary of Intrexon with primary operations in Belgium.
Trans Ova Genetics, L.C. ("Trans Ova"), Progentus, L.C. ("Progentus"), and ViaGen, L.C. ("ViaGen"), providers of advanced reproductive technologies, including services and products sold to cattle breeders and other producers, genetic preservation, and cloning technologies, are wholly owned subsidiaries with primary operations in Iowa, Maryland, Missouri, New York, Oklahoma, and Texas.
Oxitec Limited ("Oxitec"), a pioneering company in biological insect control solutions, is a wholly owned subsidiary of Intrexon with primary operations in Brazil and the United Kingdom.
Intrexon Produce Holdings, Inc. ("IPHI") is a wholly owned subsidiary of Intrexon. Okanagan Specialty Fruits, Inc. ("Okanagan"), a company that developed and received regulatory approval for the world's first non-browning apple without the use of any artificial additives, is a wholly owned subsidiary of IPHI with primary operations in Canada. Fruit Orchard Holdings, Inc. ("FOHI") is a wholly owned subsidiary of IPHI with primary operations in Washington.
Exemplar Genetics, LLC ("Exemplar"), a provider of genetically engineered swine for medical and genetic research, is a wholly owned subsidiary with primary operations in Iowa.
As of March 31, 2019, Intrexon owned approximately 44% of AquaBounty Technologies, Inc. ("AquaBounty"), a company focused on improving productivity in commercial aquaculture and whose common stock is listed on the NASDAQ Stock Market. Because Intrexon maintained contractual rights to control AquaBounty's board of directors as of March 31, 2019, the consolidated financial statements of AquaBounty are included in the accompanying consolidated financial statements of Intrexon. See Note 19 for additional discussion of Intrexon's ownership interest in AquaBounty.
Intrexon Corporation and its consolidated subsidiaries are hereinafter referred to as the "Company."
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Certain information and footnote disclosures normally included in the Company's annual financial statements have been condensed or omitted. These interim consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for fair statement of the Company's financial position as of March 31, 2019 and results of operations and cash flows for the interim periods ended March 31, 2019 and 2018. The year-end consolidated balance sheet data was derived from the Company's audited financial statements but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily indicative of the results to be expected for the year ending December 31, 2019, or for any other future annual or interim period. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the

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audited consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
The accompanying consolidated financial statements reflect the operations of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Liquidity and Going Concern
The Company has incurred operating losses since its inception and management expects operating losses and negative cash flows to continue for the foreseeable future and, as a result, the Company will require additional capital to fund its operations and execute its business plan. As of March 31, 2019, the Company had $181,634 in cash, cash equivalents and short-term investments which is not sufficient to fund the Company's planned operations through one year after the date the interim unaudited consolidated financial statements are issued, and accordingly, there is substantial doubt about the Company's ability to continue as a going concern. The analysis used to determine the Company's ability to continue as a going concern does not include cash sources outside of the Company's direct control that management expects to be available within the next twelve months.
The Company may not be able to obtain sufficient additional funding through monetizing certain of its existing assets, entering into new license and collaboration agreements, issuing additional equity or debt instruments or any other means, and if it is able to do so, they may not be on satisfactory terms. The Company's ability to raise additional capital in the equity and debt markets, should the Company choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for the Company's common stock, which itself is subject to a number of business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company. Should the Company not be able to secure additional funding through these means, the Company may have to engage in any or all of the following activities: (i) shift the Company's internal investments from subsidiaries and platforms whose potential for value creation is longer-term to near-term opportunities; (ii) sell certain of our operating subsidiaries to third parties; (iii) reduce operating expenditures for third-party contractors, including consultants, professional advisors, and other vendors; and (iv) reduce or delay capital expenditures, including non-essential facility expansions, lab equipment, and information technology projects. These actions may have a material adverse impact on the Company's ability to achieve certain of its planned objectives. Even if the Company is able to source additional funding, it may be forced to significantly reduce its operations if its business prospects do not improve. If the Company is unable to source additional funding, it may be forced to shut down operations altogether. These interim unaudited consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event the Company can no longer continue as a going concern.
Equity Method Investments
The Company accounts for its investments in each of its joint ventures and for its investments in start-up entities backed by the Harvest Intrexon Enterprise Fund I, LP ("Harvest"), all of which are related parties, using the equity method of accounting based upon relative ownership interest. The Company's investments in these entities are included in investments in affiliates in the accompanying consolidated balance sheets. See additional discussion related to certain of the Harvest start-up entities in Note 3.
The Company accounts for its investment in Oragenics, Inc. ("Oragenics"), one of its collaborators and a related party, using the fair value option. Oragenics was considered an equity method investment until September 30, 2018, by which point the Company's ownership level had significantly decreased. See Note 17 for additional discussion regarding Oragenics. Unrealized depreciation in the fair value of the Company's investment in Oragenics common stock was $751 for the three months ended March 31, 2018.

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Summarized financial data as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018, for the Company's equity method investments are shown in the following tables.
 
March 31,
2019
 
December 31,
2018
Current assets
$
10,753

 
$
17,485

Noncurrent assets
32,935

 
31,274

Total assets
43,688

 
48,759

Current liabilities
3,766

 
4,226

Net assets
$
39,922

 
$
44,533


 
Three Months Ended 
 March 31,
 
2019
 
2018
Revenues
$
98

 
$
67

Operating expenses
5,377

 
8,610

Operating loss
(5,279
)
 
(8,543
)
Other, net
4

 
14

Net loss
$
(5,275
)
 
$
(8,529
)

Variable Interest Entities
As of March 31, 2019 and December 31, 2018, the Company determined that certain of its collaborators and joint ventures as well as Harvest were variable interest entities ("VIE" or "VIEs"). The Company was not the primary beneficiary for these entities since it did not have the power to direct the activities that most significantly impact the economic performance of the VIEs. The Company's aggregate investment balances of these VIEs as of March 31, 2019 and December 31, 2018 were $19,913 and $21,219, respectively, which represents the Company's maximum risk of loss related to the identified VIEs.
Operating Leases
The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 842, Leases ("ASC 842"), effective January 1, 2019. Under ASC 842, the Company determines if an arrangement is a lease at inception. Operating leases are included as right-of-use assets ("ROU Assets") and lease liabilities on the consolidated balance sheets. The Company has elected not to recognize ROU Assets or lease liabilities for leases with lease terms of one year or less.
ROU Assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. For leases that contain fixed non-lease payments, the Company accounts for the lease and non-lease components as a single lease component. Variable lease payments, which primarily include payments for non-lease components such as maintenance costs, are excluded from the ROU Assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of the Company's operating leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease, at commencement date in determining the present value of future payments. The initial measurement of the ROU Asset also includes any lease payments made and excludes lease incentives. The lease term for all of the Company's leases includes the noncancelable period of the lease, plus any additional periods covered by either a Company option to extend, or not to terminate, the lease that the Company is reasonably certain to exercise. Lease expense is recognized on a straight-line basis over the lease term.
Segment Information
While the Company generates revenues from multiple sources, including collaboration agreements, licensing, and products and services primarily associated with bovine reproduction, management is organized around a singular research and development focus to further the development of the Company's underlying synthetic biology technologies. Accordingly, the Company has determined that it operates in one segment. As of March 31, 2019 and December 31, 2018, the Company had $17,377 and $16,839, respectively, of long-lived assets in foreign countries. The Company recognized revenues derived in foreign countries totaling $2,265 and $4,203 for the three months ended March 31, 2019 and 2018, respectively.

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Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
The Company adopted ASC 842 on January 1, 2019 using the modified retrospective method as of the adoption date without restating prior periods. In addition, the Company has elected to use the package of practical expedients which allows the Company to not have to reassess whether expired or existing contracts contain leases under the new definition of a lease or the lease classification for expired or existing leases under ASC 842. As a result of the adoption of ASC 842, the Company recorded ROU Assets and lease liabilities of approximately $43,500 and $45,500, respectively, as of January 1, 2019. The difference between the ROU Assets and lease liabilities primarily represents the balance of deferred rent as of December 31, 2018 that resulted from historical straight-lining of operating leases expense, which was reclassified upon adoption to reduce the measurement of the ROU Assets.
In June 2018, the FASB issued Accounting Standards Update ("ASU") 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). The provisions of ASU 2018-07 expand the scope of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted this standard effective January 1, 2019, and there was no material impact to the accompanying consolidated financial statements.
Recently Issued Accounting Pronouncements
In October 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 ("ASU 2018-18"). The provisions of ASU 2018-18 clarify when certain transactions between collaborative arrangement participants should be accounted for under ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), and incorporates unit-of-account guidance consistent with ASC 606 to aid in this determination. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, with early adoption permitted, and is effective for the Company for the year ending December 31, 2020. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("ASU 2018-17"). The provisions of ASU 2018-17 modify the guidance under ASC Topic 810 related to the evaluation of indirect interests held through related parties under common control when determining whether fees paid to decision makers and service providers are variable interests. Indirect interests held through related parties that are under common control are no longer considered to be the equivalent of direct interests in their entirety and instead should be considered on a proportional basis. This guidance more closely aligns with accounting of how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, with early adoption permitted, and is effective for the Company for the year ending December 31, 2020. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). The provisions of ASU 2018-15 clarify the accounting for implementation costs of a hosting arrangement that is a service contract. The new standard requires an entity (customer) in a hosting arrangement that is a service contract to follow existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Capitalized implementation costs of a hosting arrangement that is a service contract should be amortized over the term of the hosting arrangement, which might extend beyond the noncancelable period if there are options to extend or terminate. ASU 2018-15 also specifies the financial statement presentation of capitalized implementation costs and related amortization, in addition to required disclosures for material capitalized implementation costs related to hosting arrangements that are service contracts. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, with early adoption permitted, and is effective for the Company for the year ending December 31, 2020. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.

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In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements ("ASU 2018-13"). The provisions of ASU 2018-13 modify the disclosures related to recurring and nonrecurring fair value measurements. Disclosures related to the transfer of assets between Level 1 and Level 2 hierarchies have been eliminated and various additional disclosures related to Level 3 fair value measurements have been added, modified or removed. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. This standard is effective for the Company for the year ending December 31, 2020. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The provisions of ASU 2016-13 modify the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, with early adoption permitted, and is effective for the Company for the year ending December 31, 2020. The Company is currently evaluating the impact that the implementation of this standard will have on the Company's consolidated financial statements.
3. Mergers and Acquisitions
Asset Acquisition of Certain Harvest Entities
In September 2018, the Company, through its wholly owned subsidiary ActoBio, issued $30,000 of convertible promissory notes to Harvest, a related party, to acquire Harvest's ownership in CRS Bio, Inc., Genten Therapeutics, Inc., and Relieve Genetics, Inc. (collectively the "Harvest entities"). The Company also received $15,500 cash in the transaction from the acquisition of the Harvest entities. Prior to the transaction, the Company held a noncontrolling interest in the Harvest entities, with a combined carrying value for all entities of $4,303, and accounted for its ownership using the equity method of accounting. Following the transaction, the Company owns 100% of the equity interests of the Harvest entities including the rights that had been previously licensed to the Harvest entities by the Company. The Harvest entities did not meet the definition of a business and accordingly, the transaction was accounted for as an asset acquisition.
By reacquiring the rights previously licensed to the Harvest entities, the Company was relieved from its obligations under the original exclusive channel collaborations ("ECCs") and therefore wrote off deferred revenue of $10,078 in September 2018 as part of the transaction. The remaining value acquired of $8,721 was considered in-process research and development related to the reacquired rights under the ECCs and expensed immediately.
See Note 11 for additional discussion of the convertible promissory notes.
4. Investments in Joint Ventures
Intrexon Energy Partners
In March 2014, the Company and certain investors (the "IEP Investors"), including an affiliate of Third Security, LLC ("Third Security"), a related party, entered into a Limited Liability Company Agreement that governs the affairs and conduct of business of Intrexon Energy Partners, LLC ("Intrexon Energy Partners"), a joint venture formed to optimize and scale-up the Company's methane bioconversion platform ("MBP") technology for the production of certain fuels and lubricants. The Company also entered into an ECC with Intrexon Energy Partners providing exclusive rights to the Company's technology for the use in bioconversion, as a result of which the Company received a technology access fee of $25,000 while retaining a 50% membership interest in Intrexon Energy Partners. The IEP Investors made initial capital contributions, totaling $25,000 in the aggregate, in exchange for pro rata membership interests in Intrexon Energy Partners totaling 50%. In addition, Intrexon has committed to make capital contributions of up to $25,000, and the IEP Investors, as a group and pro rata in accordance with their respective membership interests in Intrexon Energy Partners, have committed to make additional capital contributions of up to $25,000, at the request of Intrexon Energy Partners' board of managers (the "Intrexon Energy Partners Board") and subject to certain limitations. As of March 31, 2019, the Company's remaining commitment was $4,568. Intrexon Energy Partners is governed by the Intrexon Energy Partners Board, which has five members. Two members of the Intrexon Energy Partners Board are designated by the Company and three members are designated by a majority of the IEP Investors. The Company and the IEP Investors have the right, but not the obligation, to make additional capital contributions above the initial limits when and if solicited by the Intrexon Energy Partners Board.

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Table of Contents

The Company's investment in Intrexon Energy Partners was $(479) and $(656) as of March 31, 2019 and December 31, 2018, respectively, and is included in other accrued liabilities in the accompanying consolidated balance sheets.
Intrexon Energy Partners II
In December 2015, the Company and certain investors (the "IEPII Investors"), including Harvest, entered into a Limited Liability Company Agreement that governs the affairs and conduct of business of Intrexon Energy Partners II, LLC ("Intrexon Energy Partners II"), a joint venture formed to utilize the Company's MBP technology for the production of 1,4-butanediol, an industrial chemical used to manufacture spandex, polyurethane, plastics, and polyester. The Company also entered into an ECC with Intrexon Energy Partners II that provides exclusive rights to the Company's technology for use in the field, as a result of which the Company received a technology access fee of $18,000 while retaining a 50% membership interest in Intrexon Energy Partners II. The IEPII Investors made initial capital contributions, totaling $18,000 in the aggregate, in exchange for pro rata membership interests in Intrexon Energy Partners II totaling 50%. In December 2015, the owners of Intrexon Energy Partners II made a capital contribution of $4,000, half of which was paid by the Company. Intrexon has committed to make additional capital contributions of up to $10,000, and the IEPII Investors, as a group and pro rata in accordance with their respective membership interests in Intrexon Energy Partners II, have committed to make additional capital contributions of up to $10,000, at the request of Intrexon Energy Partners II's board of managers (the "Intrexon Energy Partners II Board") and subject to certain limitations. Intrexon Energy Partners II is governed by the Intrexon Energy Partners II Board, which has five members. One member of the Intrexon Energy Partners II Board is designated by the Company and four members are designated by a majority of the IEPII Investors. The Company and the IEPII Investors have the right, but not the obligation, to make additional capital contributions above the initial limits when and if solicited by the Intrexon Energy Partners II Board.
The Company's investment in Intrexon Energy Partners II was $(265) and $(50) as of March 31, 2019 and December 31, 2018, respectively, and is included in other accrued liabilities in the accompanying consolidated balance sheets.
EnviroFlight
In February 2016, the Company entered into a series of transactions involving EnviroFlight, LLC ("Old EnviroFlight"), Darling Ingredients Inc. ("Darling") and a newly formed venture between the Company and Darling ("New EnviroFlight"). New EnviroFlight was formed to generate high-nutrition, low environmental impact animal and fish feed, as well as fertilizer products, from black soldier fly larvae. Through March 31, 2019, the Company and Darling have made subsequent capital contributions of $17,000 each.
The Company's investment in New EnviroFlight was $15,829 and $16,720 as of March 31, 2019 and December 31, 2018, respectively, and is included in investments in affiliates in the accompanying consolidated balance sheets.
Intrexon T1D Partners
In March 2016, the Company and certain investors (the "T1D Investors"), including affiliates of Third Security, entered into a Limited Liability Company Agreement that governs the affairs and conduct of business of Intrexon T1D Partners, LLC ("Intrexon T1D Partners"), a joint venture formed to utilize the Company's proprietary ActoBiotics platform to develop and commercialize products to treat type 1 diabetes. The Company also entered into an ECC with Intrexon T1D Partners that provides the exclusive rights to the Company's technology for use in the field, as a result of which the Company received a technology access fee of $10,000 while retaining a 50% membership interest in Intrexon T1D Partners. The T1D Investors made initial capital contributions, totaling $10,000 in the aggregate, in exchange for pro rata membership interests in Intrexon T1D Partners totaling 50%. Intrexon committed to make capital contributions of up to $5,000, and the T1D Investors, as a group and pro rata in accordance with their respective membership interests in Intrexon T1D Partners, committed to make additional capital contributions of up to $5,000, at the request of Intrexon T1D Partners' board of managers, which consisted of two members appointed by the Company and three members appointed by a majority of the T1D Investors. The Company satisfied its commitment in 2018.
In November 2018, the Company, together with its wholly owned subsidiary ActoBio, issued 1,933,737 shares of Intrexon common stock valued at $18,970 to the T1D Investors to acquire their ownership interest in Intrexon T1D Partners. Following the transaction, the Company owns 100% of the membership interests in Intrexon T1D Partners, including the rights that had been previously licensed to Intrexon T1D Partners by the Company in the ECC. Intrexon T1D Partners did not meet the definition of a business, and accordingly, the transaction was accounted for as an asset acquisition. By reacquiring the rights previously licensed to Intrexon T1D Partners, the Company was relieved from its obligations under the original ECC and therefore wrote off $8,517 of deferred revenue in November 2018 as part of the transaction. The remaining value of $10,453 was considered in-process research and development related to the reacquired rights under the ECC and expensed immediately.

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5. Collaboration and Licensing Revenue
The Company's collaborations and licensing agreements provide for multiple promises to be satisfied by the Company and typically include a license to the Company's technology platforms, participation in collaboration committees, and performance of certain research and development services. Based on the nature of the promises in the Company's collaboration and licensing agreements, the Company typically combines most of its promises into a single performance obligation because the promises are highly interrelated and not individually distinct. At contract inception, the transaction price is typically the upfront payment received and is allocated to the single performance obligation. The Company has determined the transaction price should be recognized as revenue based on its measure of progress under the agreement primarily based on inputs necessary to fulfill the performance obligation.
The Company recognizes the reimbursement payments received for research and development services in the period when the services are performed. At inception of each collaboration, the Company determines whether any milestone payments are probable and can be included in the transaction price. The milestone payments are typically not considered probable at inception and are therefore constrained. Royalties related to product sales will be recognized when sales have occurred since the royalties relate directly to the technology license granted in the agreement.
The Company determines whether collaborations and licensing agreements are individually significant for disclosure based on a number of factors, including total revenue recorded by the Company pursuant to collaboration and licensing agreements, collaborators or licensees with either majority-owned subsidiaries or equity method investments, or other qualitative factors. Collaboration and licensing revenues generated from consolidated subsidiaries are eliminated in consolidation.
The following table summarizes the amounts recorded as revenue in the consolidated statements of operations for each significant counterparty to a collaboration or licensing agreement for the three months ended March 31, 2019 and 2018.
 
Three Months Ended 
 March 31,
 
2019
 
2018
ZIOPHARM Oncology, Inc.
$
1,166

 
$
5,377

Ares Trading S.A.

 
2,423

Oragenics, Inc.
203

 
125

Intrexon T1D Partners, LLC

 
1,328

Intrexon Energy Partners, LLC
977

 
1,197

Intrexon Energy Partners II, LLC
504

 
378

Genopaver, LLC
294

 
1,315

Fibrocell Science, Inc.
383

 
293

Persea Bio, LLC
(1,272
)
 
209

Harvest start-up entities (1)
2,723

 
3,197

Other
992

 
4,006

Total
$
5,970

 
$
19,848

(1)
For the three months ended March 31, 2019 and 2018, revenues recognized from collaborations with Harvest start-up entities include: Thrive Agrobiotics, Inc.; Exotech Bio, Inc.; and AD Skincare, Inc. For the three months ended March 31, 2018, revenues recognized from collaborations with Harvest start-up entities also include Genten Therapeutics, Inc. and CRS Bio, Inc.
There have been no significant changes to the agreements with our collaborators and licensees in the three months ended March 31, 2019.

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Deferred Revenue
Deferred revenue primarily consists of consideration received for the Company's collaboration and licensing agreements. Deferred revenue consists of the following:
 
March 31,
2019
 
December 31,
2018
Collaboration and licensing agreements
$
65,135

 
$
63,284

Prepaid product and service revenues
3,157

 
2,933

Other
2,899

 
3,547

Total
$
71,191

 
$
69,764

Current portion of deferred revenue
$
17,149

 
$
15,554

Long-term portion of deferred revenue
54,042

 
54,210

Total
$
71,191

 
$
69,764


The following table summarizes the remaining balance of deferred revenue associated with upfront and milestone payments for each significant counterparty to a collaboration or licensing agreement as of March 31, 2019 and December 31, 2018, including the estimated remaining performance period as of March 31, 2019.
 
Average Remaining Performance Period (Years)
 
March 31,
2019
 
December 31,
2018
ZIOPHARM Oncology, Inc.
0.5
 
$
628

 
$
1,214

Oragenics, Inc.
5.2
 
5,669

 
5,810

Intrexon Energy Partners, LLC
5.0
 
9,659

 
10,267

Intrexon Energy Partners II, LLC
5.7
 
13,556

 
14,060

Genopaver, LLC
5.0
 
1,238

 
1,175

Fibrocell Science, Inc.
5.9
 
17,192

 
17,519

Persea Bio, LLC
5.8
 
4,070

 
2,697

Harvest start-up entities (1)
5.9
 
7,260

 
7,644

Other
2.0
 
5,800

 
2,898

Total
 
 
$
65,072

 
$
63,284

(1)
As of March 31, 2019 and December 31, 2018, the balance of deferred revenue for collaborations with Harvest start-up entities includes: Thrive Agrobiotics, Inc.; Exotech Bio, Inc.; and AD Skincare, Inc.
6. Short-term Investments
The Company's investments are classified as available-for-sale. The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of available-for-sale investments as of March 31, 2019:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Aggregate
Fair Value
U.S. government debt securities
$
74,752

 
$

 
$
(14
)
 
$
74,738

Certificates of deposit
352

 

 

 
352

Total
$
75,104

 
$

 
$
(14
)
 
$
75,090


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The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of available-for-sale investments as of December 31, 2018:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Aggregate
Fair Value
U.S. government debt securities
$
119,401

 
$

 
$
(61
)
 
$
119,340

Certificates of deposit
348

 

 

 
348

Total
$
119,749

 
$

 
$
(61
)
 
$
119,688


As of March 31, 2019, all of the available-for-sale investments were due within one year based on their contractual maturities.
Changes in market interest rates and bond yields cause certain investments to fall below their cost basis, resulting in unrealized losses on investments. The unrealized losses of the Company's investments were primarily a result of unfavorable changes in interest rates subsequent to the initial purchase of these investments and were not significant as of March 31, 2019.
As of March 31, 2019 and December 31, 2018, the Company did not consider any of its investments to be other-than-temporarily impaired. When evaluating its investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer, the Company's ability and intent to hold the security and whether it is more likely than not that it will be required to sell the investment before recovery of its cost basis.
7. Fair Value Measurements
The carrying amount of cash and cash equivalents, restricted cash, receivables, prepaid expenses and other current assets, accounts payable, accrued compensation and benefits, other accrued liabilities, and related party payables approximate fair value due to the short maturity of these instruments.
Assets
The following table presents the placement in the fair value hierarchy of financial assets that are measured at fair value on a recurring basis, including the items for which the fair value option has been elected, at March 31, 2019:
 
Quoted Prices in Active Markets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
March 31,
2019
Assets
 
 
 
 
 
 
 
U.S. government debt securities
$

 
$
74,738

 
$

 
$
74,738

Equity securities
1,474

 
315

 

 
1,789

Other

 
508

 
248

 
756

Total
$
1,474

 
$
75,561

 
$
248

 
$
77,283


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Table of Contents

The following table presents the placement in the fair value hierarchy of financial assets that are measured at fair value on a recurring basis, including the items for which the fair value option has been elected, at December 31, 2018:
 
Quoted Prices in Active Markets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
December 31,
2018
Assets
 
 
 
 
 
 
 
U.S. government debt securities
$

 
$
119,340

 
$

 
$
119,340

Equity securities
1,626

 
556

 

 
2,182

Other

 
468

 
191

 
659

Total
$
1,626

 
$
120,364

 
$
191

 
$
122,181


The method used to estimate the fair value of the Level 1 assets in the tables above is based on observable market data as these equity securities are publicly-traded. The method used to estimate the fair value of the Level 2 short-term investments in the tables above is based on professional pricing sources for identical or comparable instruments, rather than direct observations of quoted prices in active markets. The method used to estimate the fair value of the Level 2 equity securities in the tables above is based on the quoted market price of the publicly-traded security, adjusted for a discount for lack of marketability.
The Company owns preferred stock in certain of its collaborators, and these investments are classified as Level 3 within the fair value hierarchy. The methods used to estimate the fair value of these Level 3 assets are discussed in Note 17. The following table summarizes the changes in the Level 3 investments in preferred stock during the three months ended March 31, 2019.
 
Three Months Ended 
 March 31, 2019
Beginning balance
$
191

Dividend income from investments in preferred stock
12

Net unrealized appreciation in the fair value of the investments in preferred stock
45

Ending balance
$
248


There were no transfers of assets between levels of the fair value hierarchy during the three months ended March 31, 2019.
Liabilities
The carrying values of the Company's long-term debt, excluding the 3.50% convertible senior notes due 2023 (the "Convertible Notes") as discussed below, approximates fair value due to the length of time to maturity and/or the existence of interest rates that approximate prevailing market rates.
The calculated fair value of the Convertible Notes (Note 11) was approximately $122,000 and $141,000 as of March 31, 2019 and December 31, 2018, respectively, and is based on the most recent third-party trade of the instrument as of the balance sheet date. The fair value of the Convertible Notes is classified as Level 2 within the fair value hierarchy as there is not an active market for the Convertible Notes, however, third-party trades of the instrument are considered observable inputs. The Convertible Notes are reflected at amortized cost on the accompanying consolidated balance sheets, which was $150,314 and $148,101 as of March 31, 2019 and December 31, 2018, respectively.
The Company's contingent consideration liabilities are measured on a recurring basis and were $585 at March 31, 2019 and December 31, 2018. These fair value measurements were based on significant inputs not observable in the market and thus represented a Level 3 measurement. A significant change in unobservable inputs could result in a significant impact on the fair value of the Company's contingent consideration liabilities. The contingent consideration liabilities are remeasured to fair value at each reporting date until the contingencies are resolved, and those changes in fair value are recognized in earnings. There were no changes in the fair value of the Level 3 liabilities during the three months ended March 31, 2019.

23



8. Inventory
Inventory consists of the following:
 
March 31,
2019
 
December 31,
2018
Supplies, embryos and other production materials
$