PRECIGEN, INC. annual report, FY2022

Precigen, Inc. — Fiscal 2022 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2022. The filing was signed March 6, 2023. Precigen is a discovery- and clinical-stage biopharmaceutical company focused on gene and cell therapies for immuno-oncology, autoimmune disorders, and infectious diseases. Its reportable segments are Biopharmaceuticals and Precigen Exemplar, which develops genetically engineered miniature swine research models and related services.

Financial Performance and Position

Metric	2022	2021	Change
Total revenue	$26.9 million	$14.3 million	Up 88.6%
Collaboration and licensing revenue	$14.7 million	$0.5 million	Up $14.2 million
Product revenue	$1.9 million	$2.2 million	Down 12.1%
Service revenue	$10.1 million	$11.1 million	Down 9.0%
Operating loss	$(75.7) million	$(91.9) million	Improved $16.2 million
Loss from continuing operations	$(79.8) million	$(110.8) million	Improved $31.0 million
Net income attributable to Precigen	$28.3 million	$(92.2) million	Improved $120.5 million
Net income per share	$0.14	$(0.47)	Improved
Research and development expense	$47.2 million	$47.9 million	Down 1.6%
SG&A expense	$48.0 million	$52.0 million	Down 7.7%

The 2022 net income was principally attributable to $108.1 million of income from discontinued operations, including a $94.7 million gain from the sale of Trans Ova. Continuing operations remained loss-making.

• Biopharmaceuticals revenue was $14.9 million, versus $0.9 million in 2021, primarily because Precigen recognized approximately $14.6 million of previously deferred collaboration revenue after obtaining control of and dissolving Intrexon Energy Partners and Intrexon Energy Partners II.
• Exemplar revenue declined to $12.0 million from $13.3 million. Segment Adjusted EBITDA declined to $5.0 million from $6.9 million, reflecting lower demand and higher personnel costs.
• Biopharmaceuticals Segment Adjusted EBITDA was $(45.0) million, compared with $(45.8) million in 2021. Unallocated corporate costs were $(32.9) million.
• Operating margin was approximately negative 281% of revenue; net margin was approximately 105%, inflated by the Trans Ova divestiture gain rather than recurring operations.

Cash Flow, Liquidity, and Debt

• Net cash used in operating activities was $65.0 million, compared with $55.8 million in 2021.
• Investing activities provided $226.4 million, including $162.3 million of net proceeds from the Trans Ova sale and $68.4 million from investment maturities and sales.
• Financing activities used $155.3 million, primarily for $154.7 million of Convertible Note repurchases.
• At December 31, 2022, cash and cash equivalents were $4.9 million, investments were $51.1 million, and restricted cash was $43.3 million. Restricted cash was principally reserved for permitted purposes related to the Convertible Notes.
• Convertible Note principal outstanding was $43.3 million at year-end and was scheduled to mature July 1, 2023. Precigen repurchased an additional $15.5 million of principal after year-end.
• In January 2023, Precigen completed an equity offering of 43.96 million shares for approximately $73.0 million of net proceeds. The filing states that existing liquid assets and these proceeds were expected to fund operations for at least 12 months from the financial statement issuance date.
• Contractual obligations included $11.7 million of operating lease payments, $43.3 million of convertible debt, and $1.5 million of cash interest payable. Unincurred research and development commitments totaled $19.9 million.

Material Changes Versus 2021

• Precigen completed the sale of Trans Ova on August 18, 2022, receiving $162.3 million of net proceeds and classifying Trans Ova as discontinued operations.
• The company reduced its Convertible Notes by $156.7 million during 2022, materially reducing future cash interest obligations and leaving approximately $43.3 million outstanding at year-end.
• Collaboration revenue increased sharply because of the recognition of deferred revenue related to the Intrexon Energy Partners entities; this increase is nonrecurring in nature.
• R&D spending was broadly stable while SG&A declined as corporate functions and headcount were reduced.
• Precigen adopted ASU 2020-06 for convertible debt accounting, increasing reported debt and reducing additional paid-in capital and opening accumulated deficit.
• The company accrued $13.0 million for a proposed settlement of a securities class action, with a $12.4 million related insurance receivable and $0.6 million of expense remaining after insurance coverage.

Pipeline, Outlook, and Management Commentary

• Lead clinical programs include PRGN-3005 for ovarian and related cancers, PRGN-3006 for relapsed or refractory AML and related hematologic diseases, PRGN-3007 for ROR1-positive tumors, PRGN-2009 for HPV-associated cancers, PRGN-2012 for recurrent respiratory papillomatosis, and AG019 for type 1 diabetes.
• PRGN-3006 completed Phase 1 dose escalation with 26 patients. The filing reports no dose-limiting toxicities, limited cytokine release syndrome and neurotoxicity, and a 27% objective response rate among 11 evaluable relapsed or refractory AML patients in the lymphodepletion cohort. These are early-stage, non-pivotal results.
• PRGN-3005 completed dose escalation, began Phase 1b expansion with lymphodepletion, and received clearance for repeat dosing. Phase 1 data were expected in the first half of 2023.
• PRGN-3007 received FDA clearance for a Phase 1/1b trial and was open for enrollment at year-end.
• PRGN-2009 remained in Phase 1/2 development with the National Cancer Institute. Additional safety and efficacy data were expected in the first half of 2023, with interim Phase 2 data expected in the second half of 2023.
• PRGN-2012 was in Phase 2 development. The filing describes encouraging Phase 1 results, including a 58% objective response rate and 50% complete response rate at the higher dose level, but the study was small and non-pivotal.
• Management expects continuing operating losses and negative operating cash flow for the foreseeable future. Future funding may come from equity or debt financings, strategic alliances, licensing, asset sales, or other transactions.

Principal Risks and Unusual Items

• Precigen has incurred losses since inception, had an accumulated deficit of $1.9 billion at year-end, and does not expect product revenues from its clinical pipeline for several years, if ever.
• Clinical programs are early-stage and subject to enrollment, safety, efficacy, manufacturing, regulatory, and commercialization risks. No product has received marketing approval or been commercialized by the company.
• Cell and gene therapy manufacturing is complex and not yet validated for commercial use. The company relies on proprietary manufacturing processes, UltraPorator, internal facilities, and third parties.
• Additional capital will be required; future equity financing could dilute shareholders, while debt or strategic transactions could impose restrictive terms or require relinquishing rights.
• Restricted cash limits the company’s discretion over a portion of its liquidity. The company also has an at-the-market facility permitting up to $100 million of common-stock sales, although no shares were sold under it during 2022.
• The company faces competition from larger and better-capitalized biotechnology and pharmaceutical companies, uncertain reimbursement, evolving healthcare regulation, intellectual-property disputes, cybersecurity threats, and potential COVID-19-related trial disruptions.
• Randal J. Kirk and affiliates beneficially owned approximately 38% of voting stock as of February 15, 2023, creating significant shareholder concentration and influence.
• Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned goodwill valuation for the Exemplar reporting unit.

Investor Verification Checklist

• Confirm the amount and timing of remaining Convertible Note repayments and the post-year-end use of restricted cash.
• Separate recurring revenue and cash generation from the $14.6 million deferred collaboration revenue and the Trans Ova divestiture gain.
• Review the January 2023 equity offering, related-party participation, dilution, and remaining availability under the $100 million at-the-market program.
• Validate current cash burn, runway, and the company’s ability to fund $19.9 million of committed R&D expenditures while advancing multiple clinical programs.
• Assess the durability and statistical significance of reported PRGN-3006 and PRGN-2012 clinical results when updated or controlled data become available.
• Monitor the proposed $13.0 million securities-litigation settlement, related insurance recovery, and any remaining legal contingencies.
• Review Exemplar’s customer concentration, including the filing’s disclosure that one customer represented 59.6% of Exemplar revenue in 2022.