Precigen, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020; unaudited interim financial statements under U.S. GAAP. Precigen is a discovery- and clinical-stage biopharmaceutical company focused on gene and cell therapies for immuno-oncology, autoimmune disorders, and infectious diseases, with additional businesses in bovine reproductive technologies and animal research models.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Total revenue | $23.6 million | $18.3 million | $83.8 million | $73.7 million |
| Operating loss | $(25.0) million | $(44.6) million | $(90.1) million | $(126.2) million |
| Net loss attributable to Precigen | $(29.5) million | $(53.6) million | $(128.9) million | $(153.1) million |
| Loss per share | $(0.18) | $(0.35) | $(0.79) | $(1.00) |
| Cash flow from operations | Not separately provided for the quarter | Not separately provided | $(60.6) million | $(103.8) million |
Revenue mix: Q3 collaboration and licensing revenue was $5.2 million, product revenue was $6.9 million, service revenue was $11.3 million, and other revenue was $0.2 million. Nine-month collaboration and licensing revenue was $20.3 million, product revenue was $20.4 million, and service revenue was $42.6 million.
Margins: Gross profit, calculated as revenue less cost of products and services, was approximately $10.4 million in Q3 and $42.1 million for the nine months, representing approximate gross margins of 44.1% and 50.2%, respectively. Operating margins were approximately negative 105.9% and negative 107.5%.
Liquidity: At September 30, 2020, cash and cash equivalents were $27.7 million and short-term investments were $85.4 million, for total cash and short-term investments of approximately $113.1 million. Cash, cash equivalents, and restricted cash totaled $28.2 million.
Debt: Long-term debt was $194.2 million, including $200.0 million principal amount of 3.50% convertible notes due July 2023, carried at $165.4 million. Total contractual obligations included approximately $225.0 million of convertible debt principal, $21.0 million of related cash interest, $32.1 million of operating lease payments, and $14.2 million of remaining joint venture capital commitments.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased 28.9% and nine-month revenue increased 13.7%, driven by higher collaboration revenue and stronger product and service activity.
- Collaboration revenue increased primarily from accelerated recognition of deferred revenue following the termination or modification of the Oragenics and Castle Creek collaborations. These increases may not represent recurring revenue.
- Research and development expense declined 52.6% in Q3 and 44.0% for the nine months, primarily because MBP Titan operations were suspended and certain ActoBio programs were deprioritized.
- SG&A expense was approximately flat in Q3 and declined 11.6% for the nine months as corporate functions and headcount were reduced, partly offset by higher legal fees and stock-based compensation.
- Operating losses improved, but the company remained significantly loss-making. Nine-month cash used in operations declined by $43.2 million year over year.
- Trans Ova revenue and profitability improved because of higher demand, operational efficiencies, workforce reductions, improved inventory management, and lower royalty obligations.
- MBP Titan generated no external revenue in Q3 or the nine-month period after operations were suspended; the company recorded $22.0 million of related noncash goodwill and long-lived-asset impairment charges.
- Precigen issued $35.0 million of common stock in a private placement to TS Biotechnology and issued 6.3 million shares upon conversion of ActoBio convertible notes.
Outlook, Risks, Contingencies, and Unusual Items
Management stated that existing liquid assets were expected to fund operations for at least one year from the issuance date of the financial statements. However, management also expects operating losses and negative cash flows to continue and stated that additional capital will be required to fund research and development and execute the business plan. Potential funding sources include equity or debt financings, strategic alliances, licensing arrangements, asset sales, and third-party funding.
- COVID-19 temporarily suspended the AG019 Phase 1b/2a cohort and delayed enrollment in the PRGN-3005 Phase 1 trial; both programs resumed recruitment. Further delays, increased costs, or trial disruption remain possible.
- Management expected clinical-trial costs for PGEN Therapeutics and ActoBio to increase in the fourth quarter of 2020 and thereafter.
- Management expected initial data from PRGN-3005 and PRGN-3006 in the second half of 2020. The filing does not provide the subsequent clinical results.
- MBP Titan operations were suspended and remaining assets and obligations were being disposed of. The future of the methane bioconversion platform was described as uncertain.
- The company recorded a $26.6 million out-of-period adjustment in discontinued operations related to cumulative foreign-currency translation losses. Management stated that the adjustment was noncash and not material to the reported periods.
- In September 2020, Precigen settled an SEC investigation concerning disclosures about its methane bioconversion platform, without admitting or denying the allegations, and agreed to pay a $2.5 million civil penalty.
- Three purported shareholder class actions were filed in October 2020 relating to the SEC matter. The company stated that it intended to defend the lawsuits but could not predict their outcomes.
- Trans Ova remains involved in patent and licensing litigation with XY, LLC. The outcome, potential royalty obligations, and effect on technology usage remain uncertain.
- The company received a Harvest arbitration notice in July 2020 and stated that it intended to defend itself vigorously.
- In October 2020, Ares Trading converted the $25.0 million Merck Note into 6,758,400 shares of Precigen common stock, increasing potential dilution.
Most Important Facts for Investors to Verify
- Whether the company can reduce its recurring cash burn and secure additional financing before available liquidity becomes insufficient.
- The sustainability of revenue, particularly revenue accelerated from terminated or modified collaborations.
- Clinical enrollment, safety, efficacy, and regulatory progress for PRGN-3005, PRGN-3006, PRGN-2009, AG019, and INXN-4001.
- The continuing financial impact and strategic disposition of MBP Titan, including any further impairment or disposal costs.
- The terms, dilution impact, and settlement status of convertible debt, including the October 2020 Merck Note conversion.
- The potential financial and operational effects of the SEC settlement, shareholder litigation, Harvest arbitration, and XY patent litigation.
- The magnitude and timing of remaining joint venture contributions, research and development commitments, lease payments, and debt maturities.
- The effect of COVID-19 on clinical trials, supply chains, customer demand, staffing, and access to capital.