Business Context and Reporting Period
Precigen, Inc. is a synthetic biology and clinical-stage biopharmaceutical company focused on gene and cellular therapies for immuno-oncology, autoimmune disorders, and infectious diseases. Its reportable segments are Biopharmaceuticals, Exemplar, and Trans Ova. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the same periods in 2020.
The company continued its strategic shift toward healthcare, while Trans Ova and Exemplar generated the majority of current product and service revenue. Prior non-healthcare activities, including MBP Titan and assets sold in 2020, are presented as discontinued operations.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $33.6 million, up 10.4% | $58.1 million, down 3.6% |
| Operating loss | $15.7 million | $33.4 million |
| Loss from continuing operations | $20.1 million | $41.9 million |
| Net loss | $20.1 million | $37.4 million |
| Net loss per share | $0.10 | $0.19 |
| Operating cash flow | Not separately provided for the quarter | $(24.2) million |
Product and service gross profit, calculated before research and development and selling, general and administrative expenses, was approximately $18.5 million for the quarter and $30.1 million for the six-month period, implying gross margins of approximately 55% and 52%, respectively. Operating margins were approximately negative 47% and negative 57%.
- Quarterly revenue consisted of $8.3 million of product revenue, $24.8 million of service revenue, $0.3 million of collaboration and licensing revenue, and $0.1 million of other revenue.
- Six-month revenue consisted of $14.7 million of product revenue, $42.7 million of service revenue, $0.4 million of collaboration and licensing revenue, and $0.3 million of other revenue.
- Research and development expense increased to $13.7 million in the quarter and $24.2 million for the six-month period.
- SG&A expense was $20.0 million in the quarter and $38.7 million for the six-month period.
- Interest expense was $4.7 million in the quarter and $9.2 million for the six-month period, including significant noncash amortization related to the convertible notes.
- Cash, cash equivalents, and restricted cash totaled $36.9 million at June 30, 2021. Short- and long-term investments totaled $164.0 million, producing approximately $200.4 million of cash, cash equivalents, and investments.
- Total debt was $177.3 million at June 30, 2021, including $200.0 million principal amount of 3.50% convertible senior notes due July 2023, carried at $173.8 million. Total contractual debt maturities were $203.5 million, including $200.4 million due in 2023.
- Shareholders’ equity increased to $159.2 million from $67.2 million at December 31, 2020, primarily due to a January 2021 public offering that generated $121.0 million of net proceeds.
Material Changes Versus Prior Comparable Period
- Quarterly revenue increased 10.4%, driven by a 42.7% increase in service revenue, principally from stronger demand and pricing changes at Trans Ova and Exemplar. Collaboration and licensing revenue declined 93.0%.
- Six-month revenue declined 3.6% because collaboration and licensing revenue fell 97.6%, primarily reflecting accelerated recognition of deferred revenue in the 2020 period following the Castle Creek collaboration termination. Product and service revenue increased 9.0% and 36.4%, respectively.
- Quarterly operating loss widened by $3.8 million as higher service costs, research and development, SG&A, and a $0.5 million impairment charge more than offset revenue growth.
- Six-month operating loss widened by $4.9 million, largely due to increased research and development spending and the absence of prior-period collaboration revenue recognition.
- Net loss improved substantially from $43.4 million to $20.1 million for the quarter and from $99.4 million to $37.4 million for the six-month period, primarily because 2020 included significant discontinued-operation impairment and foreign-currency translation charges.
- Net cash used in operating activities improved from $41.5 million to $24.2 million for the six-month period, while net cash used in investing activities increased to $112.5 million as the company invested excess financing proceeds in securities.
- Segment Adjusted EBITDA for the six months improved to $0.7 million from negative $8.8 million. Trans Ova and Exemplar generated positive Segment Adjusted EBITDA of $18.4 million and $3.7 million, respectively, while Biopharmaceuticals reported negative $21.4 million.
Guidance, Outlook, Risks, and Unusual Items
Management did not provide quantitative revenue or earnings guidance. It expects operating losses and negative cash flows to continue for the foreseeable future and anticipates increased research and development spending as clinical and preclinical programs advance. Management states that existing liquid assets should fund operations and capital requirements for at least the next 12 months, but the company will require additional capital over the longer term.
- Potential future funding sources include equity or debt offerings, strategic alliances, licensing arrangements, asset sales, government or third-party funding, and operating cost reductions. Additional equity financing could materially dilute shareholders.
- COVID-19 previously delayed AG019 and PRGN-3005 clinical activities. Management cautions that future enrollment, site, personnel, regulatory, or supply disruptions remain possible, and the ultimate financial impact cannot be reliably estimated.
- The company remains dependent on regulatory approvals, successful clinical development, manufacturing scale-up, commercialization, intellectual-property protection, collaborators, and generation of recurring revenue.
- Contractual obligations included $19.8 million of operating lease payments, $200.0 million of convertible debt principal, $17.5 million of cash interest on the convertible debt, and $3.5 million of other long-term debt. Remaining joint-venture capital contribution commitments were $14.2 million, and unincurred third-party research and development commitments were $17.0 million.
- Trans Ova remains subject to a patent infringement lawsuit involving five patents, with trial expected in January 2022. The company also faces shareholder class and derivative litigation related to disclosures concerning the former MBP program.
- MBP Titan’s wind-down produced $4.6 million of income from discontinued operations in the six months ended June 30, 2021, including a $4.6 million gain from lease termination and a $0.5 million gain on asset disposal.
- The company reported U.S. federal net operating loss carryforwards of approximately $813.7 million, subject to potential Section 382 limitations and expiration rules.
Investor Verification Checklist
- Verify the company’s ability to fund operations beyond the stated 12-month liquidity period, particularly before the $200.0 million convertible-note maturity in July 2023.
- Track cash burn, research and development spending, clinical-trial progress, regulatory milestones, and any COVID-19-related delays.
- Assess whether Trans Ova and Exemplar’s positive operating contribution can continue to offset Biopharmaceuticals’ losses and corporate costs.
- Review the terms, conversion conditions, and refinancing or repayment options for the convertible senior notes.
- Monitor recurring product and service revenue separately from nonrecurring collaboration and licensing revenue.
- Follow the pending Trans Ova patent litigation, shareholder lawsuits, related-party matters, and remaining joint-venture funding commitments.
- Confirm future equity issuance, potential dilution, and the company’s ability to monetize or partner its clinical-stage programs.