PRECISION BIOSCIENCES INC annual report, FY2019

Precision BioSciences, Inc. — FY2019 Form 10-K

Reporting period: Fiscal year ended December 31, 2019. Although the request refers to 2019 Q4, this annual filing reports full-year results; it does not provide a clear standalone fourth-quarter financial summary. The company is a pre-commercial genome-editing biotech focused on allogeneic CAR T therapies, in vivo gene correction and food applications using its ARCUS platform.

Financial performance and liquidity

Metric	FY2019	FY2018
Revenue	$22.2 million	$10.9 million
Research and development	$82.4 million	$45.1 million
General and administrative	$27.0 million	$13.7 million
Total operating expenses	$109.4 million	$58.8 million
Loss from operations	$(87.2) million	$(47.9) million
Net loss	$(92.9) million	$(46.0) million
Net loss per share, basic and diluted	$(2.21)	$(2.92)
Net cash used in operating activities	$(71.0) million	$(51.7) million
Cash and cash equivalents at year-end	$180.9 million	$103.2 million

• Revenue came from collaborations and research funding, not product sales. Therapeutics contributed $20.6 million and Food $1.6 million in 2019. Gilead revenue was $13.3 million; Servier revenue was $7.3 million.
• Revenue more than doubled year over year, principally reflecting a full year of Gilead collaboration revenue and higher Servier revenue. Operating expenses also increased sharply as the company expanded research, clinical preparations, staffing and manufacturing capabilities.
• Revenue does not represent product gross margin; the filing does not provide a clear product-level margin measure. Operating loss was $87.2 million.
• Cash used in investing activities was $24.7 million, primarily for property, equipment and software. Financing activities provided $173.4 million, including $130.5 million of net IPO proceeds and $39.6 million from convertible notes.
• Current assets were $193.7 million and current liabilities $26.9 million. Total liabilities were $96.9 million, including $82.4 million of deferred revenue; deferred revenue is not equivalent to debt.
• The $39.6 million convertible notes were converted into common stock at the IPO. The $50 million revolving credit facility was undrawn at year-end; the company reported no debt outstanding and compliance with its covenants.
• The IPO closed in April 2019 at $16 per share. Shares outstanding were 51.2 million at year-end (51.4 million as of March 2, 2020). Net loss per share improved year over year, but weighted-average shares rose substantially after the IPO and note conversion.

Material changes and business developments

• PBCAR0191, an allogeneic anti-CD19 CAR T candidate, was in Phase 1/2a testing. Initial results covered only nine patients: in NHL, 4 of 6 had an objective response at day 28 (67%); in B-ALL, 1 of 3 achieved a complete response. No serious adverse events or dose-limiting toxicities were reported in this small initial group; CRS occurred in 3 patients and Grade 2 neurotoxicity in 1. These early results are not proof of efficacy or long-term safety.
• The company amended the PBCAR0191 trial to test higher total doses, potentially modified lymphodepletion and possible retreatment. Dose Level 3 was underway at year-end; FDA feedback and implementation of the amendment occurred in early 2020.
• The FDA accepted the PBCAR20A IND in September 2019; a Phase 1/2a trial was expected to begin in Q1 2020. The PBCAR269A IND was accepted in January 2020, with trial commencement expected in 2020. Both candidates are wholly owned.
• In January 2020, the company named primary hyperoxaluria type 1 its lead wholly owned in vivo program and planned to select a clinical candidate in 2020. Preclinical work reported approximately 70% lower urine calcium oxalate in a mouse model.
• The company opened its MCAT manufacturing facility in 2019. It is intended to support clinical materials and potentially future commercial production; expected capacity and cost benefits are management expectations, not established commercial results.

Outlook, risks and unusual items

• Management expected operating expenses and losses to rise as clinical programs and manufacturing activity expand. It said existing cash was expected to fund operations into 2021; the funding discussion more specifically estimated coverage into the second half of 2021. These are estimates based on assumptions, and additional financing may be needed.
• The company has never been profitable, has no product-sales revenue and reported a $177.1 million accumulated deficit. Management expects continuing losses and negative operating cash flows; there is no assurance of profitability or additional financing on acceptable terms.
• Collaboration economics are contingent: Servier’s agreement provides for potential aggregate payments of up to approximately $1.6 billion across targets, and Gilead’s for up to approximately $445 million in milestones, plus potential royalties. These amounts are not guaranteed; no milestone payments were received under either agreement in 2019.
• Revenue accounting changed with adoption of ASC 606 in 2019. The company reported FY2019 revenue of $22.2 million; it disclosed that revenue would have been $19.8 million under the prior accounting guidance, a $2.4 million difference. Comparisons with 2018 therefore require care.
• Key risks include early-stage clinical uncertainty, off-target editing and other safety risks, patient enrollment, manufacturing scale-up and cGMP compliance, dependence on ARCUS and collaborators, competition, intellectual-property challenges and future capital needs. Two patent interferences involving company immunotherapy patents were initiated in 2019.
• The filing identified COVID-19 as a potential post-year-end risk to trial enrollment, hospital resources, suppliers and timelines; the impact could not be estimated at the filing date. Management reported no material legal proceedings and effective disclosure controls, but no auditor opinion on internal-control effectiveness was provided.

Important facts for investors to verify

1. Follow subsequent PBCAR0191 trial updates: patient numbers, response durability, safety, dose levels and the effects of the amended protocol.
2. Confirm whether PBCAR20A and PBCAR269A trials began as planned, and track enrollment, manufacturing readiness and resulting cash requirements.
3. Review cash burn, cash runway and financing activity against management’s second-half-2021 funding estimate, including capital expenditures and potential use of the revolving facility.
4. Check collaboration revenue recognition, remaining deferred revenue and whether Servier or Gilead milestones, options or royalty-generating sales are achieved.
5. Monitor MCAT validation, operating performance and clinical supply delivery, as well as outcomes of the patent interferences and other intellectual-property matters.