PRECIGEN, INC. quarterly report, Q3 FY2021

Precigen, Inc. — Q3 2021 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, Exemplar, and Trans Ova. The company also maintains certain legacy collaboration obligations and joint-venture interests following its strategic shift toward healthcare.

This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. The filing was signed November 8, 2021.

Financial results and key metrics

Metric	Q3 2021	Q3 2020	9M 2021	9M 2020
Total revenue	$21.6 million	$23.6 million	$79.7 million	$83.8 million
Operating loss	$(25.5) million	$(23.0) million	$(58.8) million	$(51.4) million
Loss from continuing operations	$(29.8) million	$(27.5) million	$(71.7) million	$(64.1) million
Net loss	$(29.8) million	$(29.5) million	$(67.1) million	$(128.9) million
Net loss per share	$(0.15)	$(0.18)	$(0.34)	$(0.79)
Net cash used in operating activities	Not provided for quarter	Not provided for quarter	$(41.2) million	$(60.6) million

Q3 revenue declined 8.6%, primarily because collaboration and licensing revenue fell to $22 thousand from $5.2 million. Product revenue increased 5.8% to $7.3 million, and service revenue increased 25.1% to $14.1 million.
Nine-month revenue declined 5.0% to $79.7 million. Collaboration and licensing revenue fell 98.1% to $389 thousand, partly offset by product revenue growth of 7.9% and service revenue growth of 33.4%.
Approximate gross margin on product and service revenue was 28.3% in Q3 2021 versus 44.1% in Q3 2020, and 45.4% for the first nine months of 2021 versus 50.2% in the prior-year period. The filing does not present a consolidated gross margin measure.
Research and development expense increased 27.0% in Q3 and 19.9% for the first nine months, reflecting higher clinical and preclinical development costs.
Selling, general and administrative expense decreased 16.4% in Q3 and 7.0% year to date due primarily to lower headcount, lower stock compensation, and the absence of the prior-year SEC settlement charge.
Segment Adjusted EBITDA for the first nine months was $(34.1) million for Biopharmaceuticals, $5.3 million for Exemplar, and $15.9 million for Trans Ova. Reportable-segment total was $(12.9) million.

Liquidity, cash flow, debt, and balance sheet

At September 30, 2021, cash and cash equivalents were $41.7 million, while short- and long-term investments totaled $139.6 million, for approximately $181.3 million of cash, cash equivalents, and investments.
Total assets were $376.9 million and shareholders’ equity was $131.2 million, compared with $67.2 million at December 31, 2020. Shares outstanding increased to 206.7 million from 187.7 million.
Cash used in operating activities was $41.2 million for the first nine months, an improvement from $60.6 million in 2020. Investing activities used $90.5 million, primarily reflecting purchases of investments. Financing activities provided $121.3 million, including $121.0 million of net proceeds from a January 2021 public equity offering.
Total long-term debt was $180.2 million, including $200.0 million principal amount of 3.5% convertible senior notes due July 2023. The notes had a $176.8 million carrying value and approximately $169.0 million fair value at September 30, 2021.
Contractual obligations included $200.0 million of convertible debt principal, $14.0 million of future cash interest on that debt, $18.8 million of operating lease commitments, and $3.4 million of other long-term debt. Remaining joint-venture capital contribution commitments were $14.2 million, and unincurred research and development commitments were $15.7 million.
Management stated that existing liquid assets should fund operations and capital requirements for at least the next 12 months. The company nevertheless expects continuing operating losses and negative cash flow and acknowledges that additional capital will be required over the longer term.

Material changes versus the prior comparable period

The business continued shifting away from historical collaboration and licensing revenue toward internally developed healthcare programs and product and service revenue from Trans Ova and Exemplar.
Biopharmaceutical revenue declined substantially because 2020 included accelerated recognition of deferred revenue following collaboration terminations with Oragenics and Castle Creek.
Trans Ova and Exemplar produced stronger revenue and positive nine-month Segment Adjusted EBITDA, while Biopharmaceuticals incurred higher research and development spending and a larger operating loss.
The company completed a $121.0 million net public equity offering in January 2021, increasing liquidity but also diluting existing shareholders.
Nine-month net loss improved by $61.7 million versus 2020, primarily because the prior year included substantial discontinued-operation losses, including foreign currency translation losses and impairment charges.
MBP Titan’s wind-down was substantially completed. January 2021 lease termination and asset-disposal gains produced $4.6 million of income from discontinued operations for the nine months.

Guidance, outlook, commentary, risks, and unusual items

No quantified revenue, earnings, or cash-flow guidance was provided.
Management expects operating losses and negative cash flows to continue for the foreseeable future. Future funding may come from equity or debt financings, strategic transactions, asset sales, licensing arrangements, or collaborations.
Lead clinical and development programs include PRGN-3005, PRGN-3006, PRGN-2009, PRGN-2012, AG019, and INXN-4001. These programs remain subject to clinical, regulatory, manufacturing, commercialization, and funding risks.
COVID-19 previously delayed AG019 and PRGN-3005 trials. Management warned that further enrollment, site, staffing, approval, or supply-chain disruptions remain possible.
Trans Ova is evaluating strategic alternatives, including a potential sale, collaborations, or other transactions.
Precigen is a loss-making biotechnology company with an accumulated deficit of $1.89 billion. Its ability to continue operations depends on capital availability, development success, regulatory approvals, commercialization, and debt management.
Trans Ova remains involved in patent litigation with XY, with trial expected in early 2023. The company also disclosed shareholder securities litigation, a derivative action, and a shareholder books-and-records demand related to historical MBP disclosures. Management does not currently believe these matters will have a material adverse effect, but outcomes are uncertain.
The company settled an SEC investigation in 2020 and paid a $2.5 million civil penalty; the prior-year comparison reflects this nonrecurring item.
Disclosure controls and procedures were deemed effective at the reasonable assurance level, and no material change in internal control over financial reporting was reported.

Important facts for investors to verify

Whether the approximately $181.3 million of cash and investments is sufficient relative to the company’s ongoing operating cash burn, clinical spending, and 2023 convertible-note maturity.
The timing and terms of any future financing and the resulting dilution or restrictions.
Clinical enrollment, safety, efficacy, regulatory milestones, and funding requirements for the lead product candidates.
The potential outcome and financial exposure from the XY patent litigation and shareholder lawsuits.
Whether Trans Ova and Exemplar can sustain their revenue and positive Segment Adjusted EBITDA performance.
The value and recoverability of goodwill, intangible assets, deferred tax assets, collaboration receivables, and remaining joint-venture commitments.
The extent to which future revenue may depend on nonrecurring deferred-revenue recognition, strategic transactions, or uncertain royalties rather than recurring commercial product sales.