Business Context and Reporting Period
Precigen, Inc. filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The company is primarily a discovery- and clinical-stage biopharmaceutical company focused on gene and cell therapies for immuno-oncology, autoimmune disorders, and infectious diseases. It also operates Trans Ova, Exemplar, and other businesses.
In January 2020, Precigen sold most of its non-healthcare bioengineering assets and its EnviroFlight interest, shifting its strategic focus toward healthcare. The divested businesses are presented as discontinued operations.
Financial Performance and Position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $30.4 million, down 7.3% | $60.3 million, up 8.7% |
| Gross profit and margin | $15.5 million; approximately 51.0% | $31.7 million; approximately 52.7% |
| Operating loss | $39.5 million | $65.2 million |
| Loss from continuing operations | $43.4 million | $73.3 million |
| Net loss attributable to Precigen | $43.4 million; $0.26 per share | $99.4 million; $0.61 per share |
| Operating margin | Approximately negative 129.7% | Approximately negative 108.1% |
Quarterly revenue consisted of $4.3 million of collaboration and licensing revenue, $8.5 million of product revenue, $17.4 million of service revenue, and $0.2 million of other revenue. Six-month revenue consisted of $15.0 million, $13.5 million, $31.3 million, and $0.4 million, respectively.
- Research and development expense was $14.2 million in the quarter and $33.1 million year to date, down 49.7% and 40.0%, respectively, primarily from MBP Titan’s suspension and program prioritization.
- Selling, general and administrative expense was $18.7 million in the quarter and $41.8 million year to date, down 2.7% and 17.0%, respectively.
- The company recorded $22.0 million of noncash impairment charges in the six-month period, including $9.6 million for goodwill and $12.4 million for other assets associated with MBP Titan.
- Interest expense was $4.6 million for the quarter and $9.2 million year to date. The company also recorded $9.3 million of stock-based compensation expense and $5.1 million of noncash debt discount and financing-cost amortization year to date.
Cash Flow, Liquidity, and Debt
- Cash and cash equivalents were $46.7 million at June 30, 2020, compared with $65.8 million at December 31, 2019.
- Short-term investments increased to $86.3 million from $9.3 million, resulting in cash, cash equivalents, and short-term investments of approximately $133.0 million.
- Net cash used in operating activities was $41.5 million, compared with $76.6 million in the prior-year period.
- Net cash used in investing activities was $12.6 million, including substantial purchases of short-term investments and $64.2 million of net proceeds from the divestiture transactions.
- Net cash provided by financing activities was $32.9 million, including $35.0 million from a private placement of common stock.
- Total long-term debt was $223.3 million, including $200.0 million principal amount of 3.50% convertible notes due July 2023 and $30.0 million of ActoBio convertible notes maturing September 2020.
- Contractual obligations included approximately $318.7 million of operating leases, convertible debt, cash interest, and other long-term debt. The company also reported $14.2 million of remaining joint-venture capital commitments and $13.5 million of unincurred research and development commitments.
Management stated that existing liquid assets should fund operations for at least one year from the financial statement issuance date. However, the company expects continuing operating losses and negative cash flows and acknowledges that additional capital will be required to execute its business plan.
Material Changes Versus the Prior Comparable Period
- Six-month revenue increased 8.7%, primarily because $10.0 million of previously deferred Fibrocell revenue was recognized following termination of a collaboration. Quarterly revenue declined because collaboration revenue decreased and service revenue was affected by a less favorable service mix.
- Continuing-operations loss improved from $85.2 million to $73.3 million for the six-month period, largely because of lower research and development, SG&A, and operating costs.
- Total net loss was broadly unchanged year over year at $99.4 million versus $101.1 million, because the 2020 period included a $26.1 million loss from discontinued operations, including a $27.0 million noncash foreign-currency translation adjustment.
- MBP Titan operations were suspended in the second quarter due to COVID-19-related market uncertainty and weakness in the energy sector. The company is preserving the intellectual property and evaluating strategic alternatives.
- The company completed a $35.0 million private placement with TS Biotechnology and reduced corporate headcount and professional-service costs.
- Shares outstanding increased to 172.3 million at June 30, 2020 from 163.3 million at December 31, 2019. The filing also identifies 38.2 million potentially dilutive securities excluded from diluted loss per share.
Guidance, Outlook, Risks, and Unusual Items
- Management expected to announce initial data from the PRGN-3005 and PRGN-3006 clinical trials in the second half of 2020 and expected to initiate the PRGN-2009 Phase 1/2 study in 2020, subject to pandemic-related conditions.
- COVID-19 temporarily suspended the AG019 cohort and delayed PRGN-3005 enrollment; both programs resumed recruitment by June and May 2020, respectively. Further delays, site closures, enrollment constraints, supply disruptions, or regulatory delays remain possible.
- The company expects research and development spending to increase as proprietary programs advance, while collaboration revenue may decline as collaborations are paused or terminated. Profitability is not expected in the foreseeable future.
- Precigen recorded an out-of-period, entirely noncash $26.6 million adjustment related to foreign-currency translation losses from divested businesses. Management concluded the adjustment was not material to the periods affected.
- Legal and regulatory matters include an SEC fact-finding investigation concerning methane-bioconversion disclosures, Harvest arbitration initiated in July 2020, and ongoing Trans Ova patent and royalty litigation with XY, LLC.
- In July 2020, the company and Oragenics terminated an agreement; Precigen expected to recognize $2.8 million of remaining deferred revenue in the third quarter of 2020.
- Key risks include dependence on additional financing, clinical and regulatory uncertainty, intellectual-property protection, competition, related-party transactions, potential dilution, debt maturities, and the impact of COVID-19 on operations and capital access.
Important Facts for Investors to Verify
- Whether approximately $133.0 million of cash and short-term investments is sufficient relative to the company’s operating cash burn, debt maturities, lease obligations, and planned clinical spending.
- The timing and terms of any financing required before or after the July 2023 maturity of the $200.0 million convertible notes.
- Clinical-trial enrollment, safety, and efficacy updates for PRGN-3005, PRGN-3006, PRGN-2009, AG019, and INXN-4001.
- The financial and strategic consequences of suspending MBP Titan, including further impairment charges or asset-sale proceeds.
- The sustainability of Trans Ova revenue and margins, particularly in light of COVID-19 and the unresolved XY litigation.
- The outcome of the SEC investigation, Harvest arbitration, and other legal proceedings.
- The effect of discontinued operations, related-party transactions, deferred-revenue recognition, equity issuances, and potential conversion of outstanding convertible debt on future results and shareholder dilution.