Business Context and Reporting Period
Precigen, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2020. The company is primarily a discovery- and clinical-stage biopharmaceutical company focused on gene and cellular therapies for immuno-oncology, autoimmune disorders, and infectious diseases. It also operated Trans Ova Genetics, Exemplar Genetics, and MBP Titan.
In January 2020, Precigen completed transactions that divested most bioengineering assets and operations, including agricultural, insect-control, fine-chemical, and related businesses. These activities are presented as discontinued operations, reflecting a strategic shift toward healthcare.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $29.8 million | $22.6 million | Up 32.1% |
| Collaboration and licensing revenue | $10.7 million | $6.0 million | Up 79.6% |
| Product revenue | $5.0 million | $4.8 million | Up 2.6% |
| Service revenue | $13.9 million | $11.4 million | Up 22.5% |
| Operating loss | $(25.7) million | $(50.2) million | Improved $24.5 million |
| Loss from continuing operations | $(29.9) million | $(52.9) million | Improved $23.0 million |
| Net loss attributable to Precigen | $(56.0) million | $(60.7) million | Improved $4.7 million |
| Loss per share | $(0.35) | $(0.40) | Improved $0.05 |
| Net cash used in operating activities | $(27.7) million | $(43.2) million | Improved $15.5 million |
Product and service costs totaled $13.6 million, implying gross profit of approximately $16.2 million and a gross margin of approximately 54%. Operating margin was approximately negative 86%.
At March 31, 2020, cash and cash equivalents were $37.8 million and short-term investments were $111.3 million, for total cash and short-term investments of $149.2 million. Total assets were $404.7 million and shareholders’ equity was $87.2 million.
Total debt was $220.6 million, including $200.0 million principal amount of 3.50% convertible senior notes due July 2023, $30.0 million of ActoBio convertible notes, and a $25.0 million Merck note, with certain amounts included in the reported debt balance. Future contractual obligations included $256.4 million of convertible debt obligations, $35.2 million of operating lease commitments, and $24.5 million of cash interest payable on convertible debt.
Material Changes Versus the Prior Comparable Period
- Revenue increased primarily because Precigen recognized $10.0 million of previously deferred Fibrocell revenue after mutual termination of a collaboration agreement. Trans Ova service revenue also increased.
- Research and development expense declined 29.9% to $18.9 million as the company narrowed its focus on core healthcare programs. Selling, general and administrative expense declined 25.9% to $23.0 million due to reduced corporate staffing and the expiration of the Third Security services agreement.
- Loss from discontinued operations increased to $26.1 million from $9.2 million, primarily because the company recorded a $27.0 million noncash release of cumulative foreign-currency translation losses associated with divested businesses.
- Cash flow from operations improved, but investing cash flow was negative $36.6 million, primarily reflecting purchases of investments. Financing cash flow was positive $34.2 million, including $35.0 million from a private placement of common stock to TS Biotechnology.
- Shares outstanding increased to 170.7 million at March 31, 2020 from 163.3 million at December 31, 2019, including 6.0 million shares issued in the private placement.
- Segment Adjusted EBITDA losses improved for PGEN Therapeutics, ActoBio, Trans Ova, and All Other, but worsened for MBP Titan and Human Biotherapeutics. MBP Titan generated no external revenue in the quarter.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that existing liquid assets should fund operations for at least 12 months from the issuance of the financial statements, but expects operating losses and negative cash flows to continue and expects to require additional capital.
- Potential funding sources include equity or debt financings, strategic alliances, asset sales, licensing arrangements, and third-party funding. Additional equity or convertible debt could dilute shareholders.
- COVID-19 caused a temporary suspension of the final AG019 Phase 1b/2a cohort and a temporary suspension of new enrollment in the PRGN-3005 Phase 1 trial. Management expected initial PRGN-3005 data in the second half of 2020 and AG019 interim data in the third quarter of 2020, while warning that further delays were possible.
- Precigen began suspending MBP Titan operations because of COVID-19-related market uncertainty and weakness in the energy sector. A financing or other strategic alternative for MBP Titan was not imminent, and impairment of goodwill or long-lived assets remained a risk.
- The company recorded a $26.6 million out-of-period adjustment in discontinued operations related to cumulative foreign-currency translation losses. The adjustment was noncash and did not affect continuing operations, cash, short-term investments, cash flows, or Segment Adjusted EBITDA.
- The SEC had conducted a non-public fact-finding investigation concerning disclosures about the methane bioconversion platform. Precigen stated that discussions with SEC staff continued and that the ultimate outcome was uncertain.
- Trans Ova remained subject to ongoing patent and licensing litigation with XY, LLC. The filing described uncertainties involving royalties, appeals, additional claims, and the company’s continued ability to use the technology.
Important Facts for Investors to Verify
- Whether cash burn, clinical-trial spending, and COVID-19-related disruptions require additional financing sooner than management’s stated 12-month liquidity expectation.
- The sustainability of Q1 collaboration revenue, particularly the $10.0 million Fibrocell-related accelerated recognition, and the decline expected in recurring collaboration revenue.
- The timing, terms, and potential dilution associated with the $200.0 million convertible notes due 2023 and other convertible obligations.
- Whether clinical-trial enrollment and data readouts for PRGN-3005, AG019, PRGN-3006, and PRGN-2009 remain on schedule.
- The financial consequences of suspending MBP Titan, including possible impairment charges or asset-sale proceeds.
- The outcome of the SEC investigation and the remaining Trans Ova patent and royalty disputes.
- The company’s ability to convert its clinical pipeline into regulatory approvals, commercial revenue, and positive operating cash flow.