Precigen, Inc. — Q3 2022 Form 10-Q Summary
Reporting period: Quarterly and nine-month periods ended September 30, 2022, compared with the same periods in 2021. Precigen is a discovery- and clinical-stage biopharmaceutical company focused on gene and cellular therapies for immuno-oncology, autoimmune disorders, and infectious diseases. Reportable segments were Biopharmaceuticals and Exemplar. The company completed the sale of Trans Ova Genetics on August 18, 2022; Trans Ova is presented as discontinued operations.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $16.7 million | $3.3 million | $25.1 million | $10.6 million |
| Operating loss | $(7.6) million | $(21.5) million | $(53.9) million | $(70.1) million |
| Loss from continuing operations | $(7.6) million | $(26.3) million | $(57.6) million | $(84.1) million |
| Net income (loss) | $87.4 million | $(29.8) million | $50.5 million | $(67.1) million |
| Operating cash flow | Not separately provided for the quarter | Not separately provided | $(49.6) million | $(41.2) million |
| Net income (loss) per share | $0.44 | $(0.15) | $0.25 | $(0.34) |
Q3 and nine-month net income were driven primarily by a $94.7 million gain on the sale of Trans Ova, rather than by continuing operations. Collaboration and licensing revenue contributed $14.6 million in Q3 and nine months, largely from recognition of previously deferred revenue related to Intrexon Energy Partners and Intrexon Energy Partners II after Precigen obtained control of those entities.
Liquidity, debt, and capital resources
- At September 30, 2022, cash and cash equivalents were $9.1 million, restricted cash was $82.4 million, and short-term investments were $62.3 million. Total cash, cash equivalents, short-term investments, and restricted cash were $153.8 million.
- Cash, cash equivalents, and restricted cash increased by $48.5 million during the first nine months, primarily reflecting $162.3 million of proceeds from the Trans Ova sale, partially offset by $115.7 million of convertible-note repurchases and $49.6 million of operating cash use.
- Convertible notes had an $82.4 million principal balance and an $82.1 million carrying value at September 30, 2022. The notes mature on July 1, 2023. Precigen retired $117.6 million of principal during Q3 and an additional $26.4 million in October and November 2022.
- The $82.4 million of restricted cash was held in a segregated account for permitted purposes, including resolution of the convertible notes, limiting management’s flexibility to use those funds.
- Precigen had no committed source of additional debt or equity financing. It had an at-the-market agreement permitting sales of up to $100 million of common stock, but no shares were sold under the agreement during Q3.
- Management stated that existing liquid assets are not sufficient to support the company as a going concern for the next twelve months without additional capital. The filing therefore identifies substantial doubt about the company’s ability to continue as a going concern.
Material changes versus the prior comparable periods
- Total revenue increased 137.6% for the first nine months, primarily because of the $14.6 million recognition of deferred collaboration revenue. Product revenue declined 21.8%, while service revenue increased 12.1%.
- Q3 Exemplar revenue declined 34.5% to $2.1 million, reflecting lower demand from existing customers. Nine-month Exemplar revenue increased 5.2% to $10.4 million.
- Research and development expense increased 1.7% to $36.4 million for the first nine months, reflecting higher personnel costs partly offset by lower contract research and laboratory costs.
- SG&A expense decreased 9.2% to $36.5 million, primarily from lower personnel and stock-based compensation costs.
- Operating loss from continuing operations improved by $16.1 million for the first nine months, and loss from continuing operations improved by $26.5 million, partly due to lower noncash interest expense following adoption of ASU 2020-06 and reduced debt.
- Biopharmaceuticals generated negative Segment Adjusted EBITDA of $35.3 million for the first nine months, compared with negative $34.1 million in 2021. Exemplar generated positive Segment Adjusted EBITDA of $4.7 million, compared with $5.3 million.
- Trans Ova was sold for $170 million, subject to working-capital adjustments and up to $10 million of contingent earn-out payments. The company received $162.3 million of net proceeds at closing.
Outlook, management commentary, risks, and unusual items
- Management expects operating losses and negative operating cash flows to continue for the foreseeable future and intends to seek additional capital through equity or debt financing, collaborations, strategic alliances, asset monetization, licensing, and other transactions.
- Failure to obtain financing could require Precigen to delay, reduce, or eliminate research and development activities, including clinical trials, and could adversely affect its ability to continue as a going concern.
- The clinical pipeline includes PRGN-3005, PRGN-3006, PRGN-3007, PRGN-2009, and PRGN-2012, while AG019’s Phase 1b/2a study had been completed. Clinical and regulatory success remains uncertain, and the programs are not yet generating significant commercial product revenue.
- COVID-19 may cause clinical-trial, preclinical, manufacturing, regulatory, supply-chain, and financing disruptions. The filing states that the ultimate impact cannot be reasonably estimated.
- Precigen recorded $482,000 of goodwill impairment and $638,000 of impairment of other noncurrent assets during the first nine months.
- Adoption of ASU 2020-06 reduced reported noncash interest expense and resulted in an $18.2 million increase in reported debt, a $36.9 million reduction in additional paid-in capital, and an $18.7 million reduction in opening accumulated deficit.
- Pending matters include securities litigation, a derivative shareholder action, a books-and-records demand, and disputes involving former joint-venture investors. Management does not currently believe these matters will have a material adverse effect, but outcomes remain uncertain.
- The company had approximately $21.8 million of unincurred third-party research and development commitments as of September 30, 2022, in addition to operating lease and debt obligations.
Most important facts for investors to verify
- Availability, timing, and terms of additional financing, including potential dilution under the $100 million at-the-market facility.
- Use and release of the $82.4 million segregated cash balance and the company’s ability to repay or otherwise resolve the July 2023 convertible notes.
- Quarterly operating cash burn and the duration of available unrestricted liquidity after excluding restricted cash.
- Clinical enrollment, safety, efficacy, regulatory milestones, and funding requirements for PRGN-3005, PRGN-3006, PRGN-3007, PRGN-2009, and PRGN-2012.
- Whether Exemplar demand and margins recover after the Q3 decline and whether Biopharmaceuticals can reduce its recurring operating deficit.
- Final working-capital adjustments and any earn-out proceeds from the Trans Ova divestiture.
- Developments and potential financial exposure in the pending securities, derivative, books-and-records, and joint-venture-related matters.