Business Context and Reporting Period
Precision BioSciences, Inc. (DTIL) is a gene editing company focused on developing in vivo therapies using its proprietary ARCUS platform. This Form 10-Q covers the quarterly period ended June 30, 2024. The company is classified as a non-accelerated filer, a smaller reporting company, and an emerging growth company. In August 2023, the company divested its CAR T cell therapy infrastructure and related programs to Imugene, which are now reported as discontinued operations.
Key Financial Metrics
| Metric (in thousands) | Q2 2024 | Q2 2023 | 6 Months 2024 | 6 Months 2023 |
|---|---|---|---|---|
| Revenue | $49,898 | $19,789 | $67,482 | $28,569 |
| Operating Income (Loss) | $24,146 | $(3,129) | $19,959 | $(16,483) |
| Net Income (Loss) | $32,749 | $(11,891) | $41,337 | $(36,951) |
| Cash and Cash Equivalents | $123,571 | $137,794 | $123,571 | $137,794 |
| Total Debt (Current) | $22,494 | $22,412 | $22,494 | $22,412 |
| Accumulated Deficit | $(448,294) | $(465,263) | $(448,294) | $(465,263) |
Notes: Net income for the period includes a significant non-cash gain of $7.8 million (Q2) and $18.2 million (6 months) related to the change in fair value of warrant liabilities. Operating cash flow used was $33.9 million for the six months ended June 30, 2024.
Material Changes vs. Prior Period
- Revenue Surge: Revenue increased 152% year-over-year for Q2 2024. This was primarily driven by the recognition of $48.2 million in revenue from the Prevail Therapeutics agreement following its termination, and $0.9 million from a new license agreement with TG Therapeutics.
- Profitability Shift: The company reported a net income of $32.7 million for Q2 2024, compared to a net loss of $11.9 million in Q2 2023. This turnaround is largely attributable to the revenue recognition mentioned above and a $7.8 million non-cash gain on warrant liability fair value adjustments.
- Discontinued Operations: Losses from discontinued operations (CAR T programs) were $8.9 million in Q2 2023 but were zero in Q2 2024 following the divestiture to Imugene.
- Capital Structure: The company completed a 1-for-30 reverse stock split in February 2024. In March 2024, it raised approximately $37.0 million in net proceeds from an underwritten offering of common stock and warrants.
Guidance, Outlook, and Risks
Outlook and Guidance: Management expects to incur significant expenses and operating losses for the foreseeable future. The company believes its existing cash, cash equivalents, and expected operational receipts are sufficient to fund operations into the second half of 2026. Key milestones include submitting an Investigational New Drug (IND) application for PBGENE-HBV (hepatitis B) later in 2024 and an IND for PBGENE-PMM (mitochondrial disease) in 2025.
Management Commentary: The company has refocused solely on its ARCUS genome editing platform for in vivo therapies. Recent strategic moves include the termination of the Prevail agreement (returning three programs to Precision) and a new license with TG Therapeutics for non-oncological applications of azer-cel.
Risks and Contingencies:
- Liquidity: The company requires substantial additional funding to advance programs. Failure to raise capital could force delays or elimination of research programs.
- Debt Covenants: On July 31, 2024, the company refinanced its revolving line into a $22.5 million term loan. This agreement requires maintaining a cash security account equal to the outstanding principal and includes restrictive covenants.
- Regulatory and Clinical: Success depends on the safety and efficacy of novel genome editing technologies, which face rigorous regulatory scrutiny. Clinical trials are expensive and uncertain.
- Warrant Liability: The company has a $14.3 million warrant liability subject to fair value remeasurement, which can cause significant volatility in reported earnings.
Investor Verification Checklist
- Revenue Quality: Verify the sustainability of revenue streams, noting that the Q2 2024 spike was largely due to the termination of the Prevail agreement and the recognition of previously deferred revenue.
- Cash Runway: Confirm the company's ability to meet the $22.5 million cash security account requirement for its new term loan and assess if current cash ($123.6 million) is sufficient to reach the projected 2026 runway without further dilution.
- Non-Cash Gains: Adjust earnings analysis to exclude the $18.2 million non-cash gain on warrant liability fair value changes to understand core operational performance.
- Program Progress: Monitor the status of the returned Prevail programs (DMD, liver target, CNS target) and the timeline for the PBGENE-HBV IND submission.
- Debt Terms: Review the specific covenants of the July 31, 2024, term loan agreement, particularly regarding refinancing restrictions and early termination fees.