PRECIGEN, INC. quarterly report, Q2 FY2023

Precigen, Inc. — Q2 2023 Form 10-Q Summary

Business context and reporting period

Precigen is a discovery- and clinical-stage biopharmaceutical company developing gene and cell therapies for immuno-oncology, autoimmune disorders, and infectious diseases. Its principal platforms include UltraCAR-T, AdenoVerse immunotherapy, and ActoBiotics. The company also operates Precigen Exemplar, which provides genetically engineered miniature swine research models and related services. The reported period ended June 30, 2023; financial statements are unaudited.

Precigen sold Trans Ova in August 2022. Accordingly, Trans Ova results are presented as discontinued operations in the 2022 comparative periods and are excluded from 2023 continuing operations.

Financial performance and key metrics

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Total revenue	$1.8 million	$2.9 million	$3.6 million	$8.4 million
Operating loss	$(21.1) million	$(24.2) million	$(44.6) million	$(46.3) million
Loss from continuing operations	$(20.3) million	$(26.1) million	$(43.1) million	$(50.0) million
Net loss	$(20.3) million	$(17.6) million	$(43.1) million	$(36.9) million
Net loss per share	$(0.08)	$(0.09)	$(0.18)	$(0.18)
Operating cash flow	Not provided quarterly	Not provided quarterly	$(34.2) million	$(25.8) million

Q2 gross profit was approximately $0.1 million, representing an estimated gross margin of approximately 4%. Six-month gross profit was approximately $0.4 million, or approximately 11% of revenue. These calculations are based on reported revenue less cost of products and services.

• Q2 revenue declined 39.3% year over year, primarily because of lower Exemplar service activity. Product revenue decreased 47.8% and service revenue decreased 35.0%.
• Six-month revenue declined 57.1%, reflecting lower Exemplar demand and the absence of approximately $1.0 million of revenue recognized in the first quarter of 2022 from previously deferred arrangements.
• Research and development expense was $11.9 million in Q2 and $24.0 million year to date, broadly consistent with the prior-year periods.
• SG&A expense decreased 26.5% in Q2 and 20.5% year to date, primarily from lower legal and professional fees and reduced personnel costs.
• Other income, net, was $0.7 million in Q2 and $1.4 million year to date, compared with other expense of $2.0 million and $3.8 million, respectively, in the prior-year periods. The change primarily reflected lower interest expense and higher interest income.
• Biopharmaceuticals Segment Adjusted EBITDA was $(17.9) million in Q2 and $(39.3) million year to date. Exemplar Segment Adjusted EBITDA was $(0.1) million in Q2 and $0.04 million year to date.

Liquidity, cash flow, debt, and capital resources

• At June 30, 2023, cash and cash equivalents were $16.5 million, and short- and long-term investments were $79.0 million, for approximately $95.6 million of cash, cash equivalents, and investments.
• Cash, cash equivalents, and restricted cash totaled $17.0 million at June 30, 2023, versus $48.6 million at December 31, 2022. Restricted cash of $43.3 million at year-end was released to fund retirement of the Convertible Notes.
• Operating activities used $34.2 million during the first six months, compared with $25.8 million in the prior-year period. Investing activities used $26.9 million, primarily reflecting net purchases of investments. Financing activities provided $29.6 million.
• In January 2023, Precigen issued 43.96 million shares in a public offering and received net proceeds of $72.8 million. The issuance increased shares outstanding to 255.5 million at June 30, 2023 from 208.2 million at December 31, 2022.
• The company repurchased or paid at maturity the remaining $43.34 million principal amount of its 3.50% Convertible Notes during the six months ended June 30, 2023. No Convertible Notes remained outstanding at June 30, 2023.
• Lease liabilities totaled $8.0 million, including $1.4 million current and $6.5 million long term. Exemplar also had an undrawn $2.5 million revolving line of credit maturing October 31, 2023.
• Management believes existing liquid assets will fund operations for at least one year from the issuance date of the financial statements, but expects continuing operating losses and negative cash flows and states that additional capital will be required.

Material changes versus the prior comparable period

• Revenue contracted substantially because Exemplar experienced lower demand and service activity; all 2023 revenue was generated by Exemplar, while Biopharmaceuticals generated no external revenue in the reported periods.
• Operating losses improved modestly despite lower revenue because SG&A declined and 2022 included goodwill and other noncurrent-asset impairment charges.
• Net loss increased versus Q2 2022 and the six-month 2022 period because those prior periods included income from discontinued Trans Ova operations of $8.4 million and $13.1 million, respectively.
• Interest expense declined materially following retirement of the Convertible Notes, while interest income increased because of higher investment balances and rates.
• The January equity offering strengthened shareholders’ equity and liquidity but materially increased the common share count and diluted existing shareholders.
• Precigen entered an amended and restated exclusive license agreement with Alaunos Therapeutics in April 2023. Alaunos received broad rights to specified T-cell receptor technologies and will pay a $0.1 million annual license fee; no milestones or royalties are payable under the agreement.
• The 2023 Omnibus Incentive Plan became effective following shareholder approval in June 2023 and authorizes 16.4 million shares for future awards.

Outlook, commentary, risks, and unusual items

Management expects operating losses and negative cash flows to continue for the foreseeable future. Future spending is expected to be driven by clinical and preclinical development of PRGN-3005, PRGN-3006, PRGN-3007, PRGN-2009, PRGN-2012, AG019, and other pipeline programs. The filing does not provide quantitative revenue or earnings guidance.

• Key execution dependencies include clinical progress, regulatory approvals, manufacturing scale-up, commercialization, collaboration or licensing transactions, and access to additional financing.
• Management expects collaboration revenue to remain limited or decline in the near term, while current revenue is primarily dependent on Exemplar’s product and service demand.
• Research and development commitments with third parties totaled $19.5 million at June 30, 2023; the filing states these commitments are generally cancellable with advance notice.
• The company recorded an $18.75 million settlement and indemnification accrual, including a $13.0 million proposed securities-litigation settlement and other indemnification amounts. A $12.5 million insurance receivable was also recorded. The settlement received preliminary court approval in July 2023, with a final approval hearing scheduled for October 2023.
• Precigen continues to face substantial biotechnology risks, including clinical and regulatory failure, manufacturing challenges, dependence on intellectual property and key personnel, competition, uncertain market acceptance, customer concentration, litigation, and the need for additional capital.
• Four customers represented 73.3% of Q2 revenue and 78.0% of six-month revenue, increasing dependence on a limited customer base within Exemplar.

Important facts for investors to verify

• Whether the stated liquidity runway remains adequate as clinical development spending and operating cash burn continue.
• The timing and results of ongoing clinical trials, including PRGN-2012, PRGN-2009, PRGN-3005, PRGN-3006, and PRGN-3007.
• Exemplar’s customer demand, revenue recovery prospects, and ability to sustain positive or near-breakeven segment performance.
• Potential future equity or debt financing, including dilution and financing terms.
• Final approval and settlement payment requirements for the securities class action, as well as any additional litigation exposure.
• The economic and strategic effects of the Alaunos license agreement and any future licensing, partnering, asset-sale, or collaboration transactions.
• Customer concentration and the absence of meaningful current revenue from the Biopharmaceuticals segment.