Business Context and Reporting Period
Precigen, Inc. is a discovery- and clinical-stage biopharmaceutical company focused on gene and cell therapies for immuno-oncology, autoimmune disorders and infectious diseases. Its reportable segments are Biopharmaceuticals, Exemplar and Trans Ova. The Form 10-K covers the fiscal year ended December 31, 2021, filed March 1, 2022; the filing is annual rather than a standalone fourth-quarter report.
The company continues its transition toward a primarily healthcare-focused business. Its principal clinical programs include UltraCAR-T candidates PRGN-3005, PRGN-3006 and PRGN-3007; AdenoVerse candidates PRGN-2009 and PRGN-2012; and ActoBiotics candidate AG019.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $103.9 million | $103.2 million | 0.7% increase |
| Collaboration and licensing revenue | $0.5 million | $21.2 million | 97.6% decrease |
| Product revenue | $27.3 million | $24.3 million | 12.1% increase |
| Service revenue | $75.6 million | $56.9 million | 32.8% increase |
| Operating loss | $79.3 million | $86.6 million | 8.4% improvement |
| Net loss attributable to Precigen | $92.2 million | $170.5 million | 46.0% improvement |
| Net loss per share | $0.47 | $1.02 | Improved |
| Operating cash flow | $(55.8) million | $(77.0) million | Cash use decreased |
| Cash, cash equivalents and investments | $163.7 million | $100.1 million | Increase |
Revenue was approximately flat overall because higher Trans Ova and Exemplar product and service revenue offset the sharp decline in legacy collaboration revenue. Based on reported figures, the operating margin was approximately negative 76% and the net margin approximately negative 89%.
- Research and development expense increased 20.4% to $50.1 million as clinical and preclinical programs advanced.
- Selling, general and administrative expense decreased 19.2% to $74.1 million, reflecting lower corporate headcount and the absence of prior-period settlement costs.
- Biopharmaceuticals generated Segment Adjusted EBITDA of negative $45.8 million, while Exemplar generated $6.9 million and Trans Ova generated $17.4 million.
- Net cash used in investing activities was $74.5 million, largely reflecting purchases of investments. Financing activities provided $121.2 million, including $121.0 million of net proceeds from a January 2021 common-stock offering.
- At December 31, 2021, cash and cash equivalents were $42.9 million, short- and long-term investments were $120.8 million, and total shareholders’ equity was $107.3 million.
Debt, Liquidity and Capital Requirements
- Long-term debt was $183.2 million, including $200.0 million principal amount of 3.50% convertible senior notes due July 1, 2023. The notes had a carrying value of $179.9 million and accrued cash interest of $7.0 million annually.
- Total contractual obligations were $233.3 million, including $200.0 million of convertible debt, $14.0 million of related cash interest, $16.0 million of operating leases and $3.3 million of other long-term debt.
- Management stated that existing liquid assets were expected to fund operating expenses and capital requirements for at least 12 months from issuance of the financial statements. The company nevertheless expects continuing operating losses and negative operating cash flow and will require additional capital over time.
- Potential funding sources include equity or debt offerings, strategic transactions, asset sales, collaborations and licensing arrangements. Additional equity financing could dilute existing shareholders.
- The company had approximately $856.4 million of U.S. federal net operating loss carryforwards, subject to expiration and Section 382 limitations.
Material Changes Versus the Prior Comparable Period
- Legacy collaboration and licensing revenue fell by $20.7 million, primarily because 2020 included accelerated recognition of deferred revenue following collaboration terminations with Castle Creek and Oragenics.
- Trans Ova revenue increased to $89.6 million from $71.2 million, and its Segment Adjusted EBITDA increased to $17.4 million from $13.5 million, supported by stronger beef and dairy markets, higher demand and operating efficiencies.
- Exemplar revenue increased to $13.3 million from $10.2 million, while Segment Adjusted EBITDA increased to $6.9 million from $4.0 million.
- Biopharmaceutical Segment Adjusted EBITDA declined to negative $45.8 million from negative $35.4 million as development spending increased.
- Net loss improved substantially because 2020 included significant discontinued-operation losses, impairments, settlement costs and other unusual items. In 2021, discontinued operations generated $4.6 million of income, principally from gains on the termination of the MBP Titan facility lease and asset dispositions.
- Shares outstanding increased to 206.7 million at year-end from 187.7 million, primarily reflecting the January 2021 public offering and other share issuances.
- Cash used in operations improved by $21.3 million, but the company remained dependent on financing to support operations.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal numerical revenue, earnings or clinical-development guidance. Management expects research and development expense to increase as programs advance and expects losses and negative operating cash flow to continue for the foreseeable future.
- Clinical programs remain early-stage and require additional trials, regulatory approvals, manufacturing scale-up and substantial funding. Positive interim or preliminary data may change as additional data become available.
- COVID-19 could continue to delay enrollment, site operations, regulatory reviews, manufacturing and supply chains. Prior trial pauses affected AG019 and PRGN-3005.
- Gene and cell therapies involve significant safety, manufacturing, regulatory and commercialization risks, including adverse events, inconsistent production, high costs and limited reimbursement.
- The company faces substantial debt obligations, including the 2023 convertible notes, and may not generate sufficient operating cash to service or refinance them.
- Trans Ova is subject to a pending patent infringement lawsuit involving five patents, with trial expected in early 2023. The ultimate outcome and potential financial impact are uncertain.
- Investors should monitor shareholder litigation and derivative actions related to prior disclosures concerning the methane bioconversion program, as well as arbitration-related disputes with investors in Intrexon Energy Partners and Intrexon Energy Partners II. No specific damages were alleged in the arbitration notice, and no loss was accrued.
- Randal J. Kirk and affiliated shareholders controlled approximately 40% of the company’s voting stock at year-end, creating significant shareholder concentration and related-party governance risk.
- The company adopted ASU 2020-06 effective January 1, 2022. It expects the adoption to increase reported long-term debt by approximately $18.2 million, reduce shareholders’ equity by the same amount and reduce noncash interest expense by approximately $11.8 million in 2022 and $6.4 million in 2023, without affecting cash flow.
Important Facts for Investors to Verify
- Verify the timing and terms of the $200.0 million convertible notes due July 2023, including conversion, repurchase and refinancing requirements.
- Assess whether the stated $163.7 million of cash, cash equivalents and investments is sufficient relative to projected operating cash burn, clinical spending and debt obligations.
- Track enrollment, safety, efficacy and regulatory milestones for PRGN-3005, PRGN-3006, PRGN-3007, PRGN-2009, PRGN-2012 and AG019; most disclosed data remain interim or preliminary.
- Determine whether Trans Ova and Exemplar’s positive operating contributions can offset increasing Biopharmaceuticals research and development costs.
- Review the pending Trans Ova patent litigation, shareholder litigation, collaborator and joint-venture disputes, and any resulting contingencies.
- Evaluate dilution from the 2021 equity offering, outstanding options, restricted stock units, warrants, convertible notes and the share lending arrangement.
- Confirm the expected expiration and utilization limits of tax attributes, including Section 382 restrictions and pre-2018 net operating loss expiration beginning in 2022.