Precision BioSciences, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Precision is a clinical-stage genome-editing company developing therapeutics and food applications using its ARCUS platform. It has not generated product sales and reports Therapeutics and Food segments.
Financial results and liquidity
Amounts in $ millions, except per-share data.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $5.4 | $1.9 | $10.9 | $3.4 |
| Research and development | $22.8 | $10.9 | $42.7 | $19.0 |
| General and administrative | $6.5 | $3.1 | $11.5 | $5.8 |
| Operating loss | $(23.9) | $(12.1) | $(43.4) | $(21.4) |
| Net loss | $(19.4) | $(11.8) | $(51.2) | $(20.8) |
| Basic and diluted loss per share | $(0.39) | $(0.75) | $(1.55) | $(1.33) |
- Revenue is from collaborations, licenses and research funding, not product sales. Q2 revenue growth primarily reflected increased Gilead research funding; six-month revenue also included funding and license fees from other collaborations.
- R&D expense rose substantially, mainly from platform and early-stage research, staffing, outsourced R&D, contract manufacturers and research organizations, and laboratory costs. Direct external costs for the CD19 program declined versus the prior-year periods.
- Cash and cash equivalents were $226.1 million at June 30, 2019, compared with $103.2 million at December 31, 2018. Current assets were $237.1 million and current liabilities $15.8 million; reported working capital was not stated.
- For the first six months, operating cash use was $36.5 million, investing cash use $13.2 million, and financing cash provided $172.6 million. Investing outflows were primarily purchases of property, equipment and software.
- Total assets were $271.9 million; total liabilities $97.9 million; stockholders’ equity $174.0 million. The filing reports no borrowings on its new revolving credit line at quarter-end.
- No gross margin is presented; the company had no product sales and reports collaboration revenue.
Material changes and unusual items
- Completed its IPO on April 1, 2019, selling 9.085 million shares at $16 per share and receiving approximately $130.5 million net proceeds. Preferred shares converted into common stock.
- March 2019 convertible notes of $39.6 million principal, plus accrued interest, converted into 2.9 million common shares at $13.60 per share when the IPO closed. Fair-value accounting produced a $9.8 million expense for the first half; the quarter included a $3.0 million gain. The notes are no longer outstanding.
- Adopted ASC 606 in January 2019 using the modified retrospective method, recording a $1.0 million adjustment to opening accumulated deficit. Adoption reduced reported first-half revenue by $1.1 million versus prior revenue guidance.
- Entered a $50 million revolving credit facility with Pacific Western Bank, maturing May 15, 2022. No amounts were drawn at June 30; the facility includes minimum-cash-related pricing and covenants.
- Cash equivalents included $219.0 million of repurchase agreements classified as Level 2 fair value measurements.
Outlook, business updates and risks
- Management estimated existing cash and cash equivalents would fund operations into 2021, while cautioning that assumptions could prove inaccurate. The company expects continued losses and negative operating cash flows and anticipates needing additional capital absent significant recurring revenue.
- PBCAR0191 began dosing in a Phase 1/2a trial in April 2019 for relapsed or refractory NHL and B-cell precursor ALL. Management said dosing was progressing as planned and expected interim data by the first quarter of 2020.
- PBCAR20A, a wholly owned CD20-targeting CAR T candidate, was expected to enter a Phase 1/2a trial in Q4 2019. These are management expectations, not guarantees.
- The company opened its MCAT manufacturing center in July 2019, after quarter-end, and planned to use it to make clinical material for trials planned in 2020. Management cited potential future capacity but warned that operating efficiencies and manufacturing timelines are uncertain.
- Servier collaboration: the company received a $105 million upfront payment and may earn additional milestone payments and royalties; future milestone amounts were excluded from the ASC 606 transaction price because they were constrained. Gilead collaboration: up to $40 million research funding over an initial three-year term, plus potential milestones and royalties.
- Principal risks include clinical and regulatory uncertainty, off-target editing or other safety issues, manufacturing and donor-cell supply challenges, reliance on collaborators, intellectual-property disputes, competition, and the need for additional financing. The company states it has never been profitable and may never achieve profitability.
- No material legal proceedings were reported. Management concluded disclosure controls were effective at the reasonable-assurance level as of June 30, 2019, with no material quarterly changes in internal control over financial reporting.
Investor verification points
- Confirm the cash runway assumptions behind management’s estimate of funding into 2021, including expected clinical, manufacturing and public-company costs.
- Track PBCAR0191 trial progress and timing and quality of interim data, and whether PBCAR20A entered its expected trial on schedule.
- Assess whether the new MCAT facility meets cGMP requirements, achieves expected efficiencies and supports planned clinical supply.
- Review collaboration revenue recognition, deferred revenue balances and the conditions and likelihood of Servier and Gilead milestones, options and royalties.
- Monitor cash burn, capital expenditure, possible future financing and the Pacific Western facility’s covenants and minimum-cash conditions.