Precision BioSciences, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. The company develops genome-editing products using its ARCUS platform for therapeutics and food applications. It had no product sales and remained an early-stage, loss-making business. The filing states that the FDA accepted its IND for its CD19 allogeneic CAR T candidate and that the first patient was dosed in April 2019, after quarter-end.
Key financial metrics
Amounts in millions of dollars except per-share data; balance-sheet figures are as of the dates shown.
| Metric | Q1 2018 | Q1 2019 |
|---|---|---|
| Revenue | $1.528 | $5.462 |
| Research and development expense | $8.117 | $19.961 |
| General and administrative expense | $2.646 | $4.995 |
| Total operating expenses | $10.763 | $24.956 |
| Operating loss | $(9.235) | $(19.494) |
| Net loss | $(9.012) | $(31.783) |
| Net loss per share, basic and diluted | $(0.57) | $(1.99) |
| Net cash used in operating activities | $(14.454) | $(19.907) |
| Net cash used in investing activities | $(0.619) | $(5.082) |
| Net cash provided by financing activities | $0.020 | $38.295 |
- Revenue was primarily collaboration and research funding, not product sales. Q1 2019 revenue included approximately $3.3 million from Gilead and $1.5 million from Servier.
- Operating margin was approximately negative 357% in Q1 2019, compared with negative 604% in Q1 2018. No product gross margin is reported; the company had no product sales.
- At March 31, 2019, cash and cash equivalents were $116.499 million; current assets were $136.980 million and current liabilities were $71.384 million. Working capital was approximately $65.6 million.
- Total assets were $166.801 million, total liabilities $155.971 million, and stockholders’ equity $10.830 million. Accumulated deficit was $115.973 million.
- Current liabilities included $52.440 million of convertible notes payable, measured at fair value. The notes had $39.6 million principal, accrued interest at 6%, and generated a $12.708 million noncash fair-value loss in Q1.
- Cash and cash equivalents increased by $13.306 million during the quarter, mainly because of $39.550 million in net proceeds from the note issuance, partly offset by operating and investing cash use.
Material changes versus prior comparable period
- Revenue increased $3.934 million (about 257%), primarily due to Gilead research funding and other collaboration revenue.
- R&D expense increased $11.844 million, mainly from platform and early-stage research, outsourced R&D, lab supplies, staffing, and contract manufacturing costs. Direct CD19 external development costs decreased $1.124 million.
- G&A expense increased $2.349 million, including higher employee and infrastructure costs.
- Net loss widened by $22.771 million. In addition to higher operating costs, Q1 2019 included the $12.708 million noncash fair-value loss and $0.182 million interest expense on the convertible notes.
- Investing cash use increased to $5.082 million, mainly for property, equipment, and software purchases.
Outlook, risks, and unusual items
- Management expects operating expenses and losses to rise as it advances clinical and preclinical programs, expands manufacturing capabilities, and bears public-company costs. It does not expect product revenue in the foreseeable future.
- Management said cash on hand plus IPO proceeds should fund operations through 2020, while cautioning that assumptions may prove inaccurate and additional capital may be needed. The company expects negative operating cash flows for the foreseeable future and may need financing or further collaborations.
- After quarter-end, on April 1, 2019, the company completed its IPO of 9.085 million shares at $16 per share, receiving approximately $130.9 million in net proceeds. The convertible notes settled into 2,921,461 common shares at $13.60 per share. These transactions are not reflected in the March 31 balance sheet.
- The company adopted ASC 606 on January 1, 2019 using the modified retrospective method. Adoption reduced Q1 revenue by $0.627 million versus prior guidance and produced a $0.997 million opening accumulated-deficit adjustment.
- Key risks include the early stage and uncertainty of genome-editing development, clinical safety and efficacy, regulatory approval, manufacturing execution, intellectual-property disputes, competition, reliance on collaborators, and the need for additional capital. Management reported no material legal proceedings and concluded disclosure controls were effective at March 31, 2019.
- Future minimum operating lease payments totaled approximately $16.3 million as of March 31, 2019. The filing reports no material change in contractual obligations from the IPO prospectus.
Important facts for investors to verify
- Whether clinical progress for the CD19 candidate and other programs supports the expected development timelines and spending needs.
- How collaboration funding, revenue recognition under ASC 606, and deferred revenue evolve, particularly for Servier and Gilead.
- Post-IPO cash, cash-burn rate, and whether management’s stated runway through 2020 remains achievable.
- The actual costs, timing, and operating efficiency of manufacturing expansion and facility investments.
- Potential dilution from shares issued in the IPO and note conversion, outstanding options, and future equity-plan issuances.