Precigen, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Precigen is a discovery- and clinical-stage biopharmaceutical company focused on gene and cell therapies for immuno-oncology, autoimmune disorders, and infectious diseases. The company also operates Exemplar, which develops genetically engineered swine research models, and Trans Ova, a bovine reproductive technology business. The report covers the three months ended March 31, 2022, with comparisons to the three months ended March 31, 2021.
Reportable segments were Biopharmaceuticals, Exemplar, and Trans Ova. MBP Titan, the methane bioconversion business, remains classified as discontinued operations; it had no discontinued-operation activity in Q1 2022.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $32.0 million | $24.5 million | Up 30.6% |
| Product revenue | $8.7 million | $6.4 million | Up 36.7% |
| Service revenue | $23.2 million | $17.9 million | Up 29.4% |
| Operating loss | $17.9 million | $17.7 million | Loss up $0.2 million |
| Loss from continuing operations | $19.3 million | $21.8 million | Improved $2.6 million |
| Net loss | $19.3 million | $17.3 million | Loss increased $1.9 million |
| Net loss per share | $0.10 | $0.09 | Loss increased $0.01 |
| Cash flow from operations | $(18.8) million | $(16.4) million | Outflow increased $2.4 million |
Product gross margin was approximately 13.9% in Q1 2022, and service gross margin was approximately 58.7%. Consolidated gross margin was approximately 46.3%, broadly comparable with the prior-year period. Operating margin was approximately negative 55.9%, compared with negative 72.2% in Q1 2021, reflecting higher revenue but continued substantial research, development, and corporate costs.
- Research and development expense increased 21.3% to $12.8 million, primarily due to higher contract research organization costs and laboratory supplies.
- Selling, general and administrative expense increased 4.7% to $19.6 million, largely because of higher legal and professional fees.
- Interest expense declined to $2.1 million from $4.5 million, primarily because of lower noncash interest expense after adoption of ASU 2020-06.
- Biopharmaceuticals generated external revenue of $0.1 million and Segment Adjusted EBITDA of negative $11.6 million. Exemplar generated revenue of $5.4 million and Segment Adjusted EBITDA of $3.6 million. Trans Ova generated revenue of $26.5 million and Segment Adjusted EBITDA of $5.4 million.
- Cash, cash equivalents, and restricted cash totaled $40.7 million at March 31, 2022. Short- and long-term investments totaled $101.7 million, for combined cash and investments of approximately $142.1 million.
- Total debt was $201.5 million, including $200.0 million principal amount of 3.50% convertible senior notes due July 2023. Total lease liabilities were $11.1 million.
- Total assets were $335.6 million and shareholders’ equity was $73.8 million at March 31, 2022, compared with $107.3 million at December 31, 2021.
Material changes versus the prior comparable period
- Revenue increased $7.5 million, driven by stronger demand for Trans Ova products and services and higher Exemplar demand, pricing, and service activity.
- Collaboration and licensing revenue declined to zero from $66,000, consistent with the company’s transition away from its historical collaboration model.
- Biopharmaceuticals Segment Adjusted EBITDA worsened by $2.8 million as clinical and preclinical development spending increased.
- Exemplar Segment Adjusted EBITDA nearly doubled, while Trans Ova Segment Adjusted EBITDA declined 15.9% because of higher supplies, drugs, legal costs, and personnel expenses.
- The company recorded a $482,000 goodwill impairment charge related to a biopharmaceutical reporting unit.
- Adoption of ASU 2020-06 increased reported long-term debt by $18.2 million, reduced additional paid-in capital by $36.9 million, and reduced opening accumulated deficit by $18.7 million. The adoption had no cash-flow impact.
- Q1 2021 included $4.5 million of income from discontinued operations, primarily gains from the termination of an MBP Titan facility lease and asset disposals; no comparable benefit occurred in Q1 2022.
- Shares outstanding increased to 207.7 million at March 31, 2022 from 206.7 million at December 31, 2021, partly reflecting shares issued for accrued compensation and services.
Guidance, outlook, commentary, and risks
Management expects operating losses and negative cash flows to continue for the foreseeable future and does not provide specific revenue or earnings guidance. Management states that existing liquid assets should fund operations for at least one year from the issuance date of the financial statements, but the company will require additional capital to execute its business plan and ultimately reach profitability.
Potential funding sources include equity or debt offerings, asset sales, partnerships, licensing transactions, and other strategic arrangements. Additional financing may dilute shareholders, impose restrictive covenants, or require the company to relinquish rights to technologies, programs, or future revenue streams.
- The $200.0 million convertible notes mature in July 2023, creating a significant near-term refinancing or repayment requirement.
- Contractual obligations included $229.4 million of operating leases, convertible debt, cash interest, and other long-term debt. The company also had $14.2 million of remaining joint venture capital contribution commitments and $22.7 million of unincurred research and development commitments.
- COVID-19 may delay clinical trials, preclinical work, manufacturing, regulatory activity, and access to capital; the full financial impact remains unclear.
- Trans Ova faces ongoing patent litigation, with a trial expected in 2023. The company states that potential damages cannot be predicted with assurance.
- Arbitration with investors in Intrexon Energy Partners and Intrexon Energy Partners II was proceeding. The company proposed payments of $5.0 million and $2.0 million, while the investor group proposed substantially higher amounts, including approximately $34.0 million and $12.0 million plus accrued interest. The arbitration outcome could also affect $21.2 million of deferred revenue.
- Pipeline programs remain subject to clinical, regulatory, manufacturing, commercialization, intellectual-property, and competitive risks. The company may never obtain regulatory approval or achieve profitable commercialization.
Investor verification priorities
- Verify the company’s ability to refinance, repay, or otherwise address the $200.0 million convertible notes due in July 2023.
- Monitor quarterly operating cash burn, remaining cash and investments, and the timing and terms of any required capital raise.
- Track clinical progress, enrollment, safety, efficacy, and regulatory milestones for PRGN-3005, PRGN-3006, PRGN-2009, PRGN-2012, and other pipeline programs.
- Assess whether Trans Ova and Exemplar revenue growth and positive segment EBITDA can offset continuing Biopharmaceuticals and corporate cash requirements.
- Follow the Intrexon Energy Partners arbitration, related deferred revenue, joint venture funding commitments, and the Trans Ova patent litigation.
- Reconcile non-GAAP Segment Adjusted EBITDA with consolidated results, since it excludes corporate costs, research investment effects, stock compensation, depreciation, interest, and other items.