Precigen, Inc. Form 10-Q Summary
Business Context and Reporting Period
Precigen is a discovery- and clinical-stage biopharmaceutical company focused on gene and cellular therapies for immuno-oncology, autoimmune disorders, and infectious diseases. Its reportable segments are Biopharmaceuticals and Exemplar, which provides genetically engineered miniature swine models and related services. The unaudited filing covers the three and six months ended June 30, 2022, with comparisons to the corresponding 2021 periods.
Trans Ova Genetics and the former MBP Titan operations are presented as discontinued operations. On July 1, 2022, after the quarter-end, Precigen agreed to sell Trans Ova for $170 million in cash at closing, subject to adjustments, plus potential earn-outs of up to $10 million.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $2.9 million, down 23.7% | $8.4 million, up 16.2% |
| Operating loss | $24.2 million | $46.3 million |
| Loss from continuing operations | $26.1 million | $50.0 million |
| Income from discontinued operations | $8.4 million | $13.1 million |
| Net loss | $17.6 million, or $0.09 per share | $36.9 million, or $0.18 per share |
| Cash flow from operating activities | Not separately reported | $(25.8) million |
- Continuing-operations revenue consisted primarily of product revenue, service revenue, and other revenue; collaboration and licensing revenue was zero in both 2022 periods.
- Six-month revenue increased because service revenue rose 34.8% to $7.1 million, more than offsetting lower product revenue and the absence of collaboration revenue.
- Approximate continuing-operations gross profit, calculated from reported revenue less product and service costs, was $1.1 million for the quarter and $4.9 million for the six months. The filing does not present a consolidated gross-margin measure.
- Research and development expense was $12.0 million for the quarter and $23.8 million for the six months. SG&A expense was $12.7 million and $26.4 million, respectively.
- Segment Adjusted EBITDA was $(10.5) million for the quarter and $(18.5) million for the six months. Biopharmaceuticals remained loss-making, while Exemplar generated positive Segment Adjusted EBITDA of $0.8 million and $4.4 million, respectively.
Liquidity, Debt, and Balance Sheet
- At June 30, 2022, cash and cash equivalents were $43.8 million, and short- and long-term investments totaled $83.3 million. Including cash and restricted cash associated with held-for-sale operations, total cash, cash equivalents, and restricted cash were $49.9 million.
- Total assets were $321.2 million, total liabilities were $265.6 million, and shareholders’ equity was $55.7 million.
- Long-term debt had a carrying value of $198.7 million and represented $200.0 million principal amount of 3.50% convertible senior notes due July 1, 2023. Cash interest is $7.0 million annually.
- Operating leases had undiscounted remaining payments of $13.2 million, with lease liabilities recorded at $9.1 million.
- Management stated that existing liquid assets, together with expected Trans Ova sale proceeds, should fund operations for at least one year from the issuance of the financial statements. Management also expects continuing operating losses and negative cash flows and acknowledges that additional capital will be required over the longer term.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue decreased 23.7%, primarily because collaboration revenue ended and Exemplar product and service demand declined. Six-month revenue increased 16.2%, driven by higher Exemplar service revenue.
- Operating loss improved by $2.2 million for the quarter and $2.2 million for the six months, primarily due to lower SG&A and, for the quarter, lower R&D expense.
- Interest expense declined substantially to $2.1 million for the quarter and $4.1 million for the six months, compared with $4.6 million and $9.1 million, respectively, in 2021. The decrease primarily reflects adoption of ASU 2020-06, which reduced noncash interest expense on the convertible notes.
- Precigen recorded a $0.5 million goodwill impairment in the first quarter of 2022 and $0.6 million of other noncurrent-asset impairment expense in the six-month period.
- Cash flow from investing activities was positive $33.1 million in 2022, primarily from $36.0 million of investment maturities, compared with negative $112.5 million in 2021. The 2021 period included substantial investment purchases and $121.0 million of equity-offering proceeds.
- The adoption of ASU 2020-06 increased reported debt by $18.2 million, reduced additional paid-in capital by $36.9 million, and reduced opening accumulated deficit by $18.7 million; it did not affect cash flows.
Outlook, Commentary, Risks, and Unusual Items
- The principal clinical programs include PRGN-3005, PRGN-3006, PRGN-2009, and PRGN-2012. PRGN-3006 received FDA Fast Track designation in April 2022. The filing provides no formal revenue or earnings guidance.
- Management expects R&D spending to increase as proprietary programs progress through preclinical and clinical development. Product candidates require regulatory approval and commercial scale-up before generating material product revenue.
- The Trans Ova sale was expected to close in the third quarter of 2022, subject to customary conditions, including HSR clearance. Upon closing, $200 million comprising the purchase price and additional company funds will be placed in a segregated account for permitted purposes, including resolving the convertible notes, limiting management’s discretion over the proceeds.
- In July 2022, an arbitration ruling required Precigen to pay approximately $7.0 million to acquire investor interests in two energy-related joint ventures. Payment was made July 21, 2022, and the company expects to record a gain when the transfer is completed.
- Key risks include continued operating losses and cash burn, the 2023 convertible-debt maturity, dependence on additional financing, clinical and regulatory uncertainty, manufacturing and commercialization risks, intellectual-property protection, competition, COVID-19-related disruption, and potential delays or failure to complete the Trans Ova sale.
- Trans Ova remains involved in patent litigation involving four patents, with a trial expected in 2023. The company also disclosed shareholder litigation and a books-and-records action, although management did not believe the matters were materially adverse as of June 30, 2022.
Important Facts for Investors to Verify
- Whether the Trans Ova transaction closed on the expected timeline, the final cash proceeds and adjustments, any earn-out potential, and the permitted use of segregated funds.
- Precigen’s ability to refinance, repay, or otherwise resolve the $200.0 million convertible notes due July 2023.
- Quarterly cash burn, available unrestricted liquidity, and the timing and terms of any required equity, debt, asset-sale, or partnership financing.
- Clinical-trial enrollment, safety and efficacy data, regulatory milestones, and development spending for the lead product candidates.
- Exemplar’s customer demand, revenue concentration, and profitability following the planned divestiture of Trans Ova.
- Potential effects of the disclosed litigation, arbitration settlement, JV commitments of approximately $14.2 million, and third-party research and development commitments of approximately $19.5 million.