PRECIGEN, INC. The following "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q, or Quarterly Report, and our Annual Report on Form 10-K for the year endedDecember 31, 2021 , or Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates, expectations, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements and you are cautioned not to place undue reliance on forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report, particularly in "Special Note Regarding Forward-Looking Statements" and "Risk Factors." The forward-looking statements included in this Quarterly Report are made only as of the date hereof.
Overview
We are a dedicated discovery and clinical-stage biopharmaceutical company advancing the next generation of gene and cell therapies with the overall goal of improving outcomes for patients with significant unmet medical needs. We are leveraging our proprietary technology platforms to develop product candidates designed to target urgent and intractable diseases in our core therapeutic areas of immuno-oncology, autoimmune disorders, and infectious diseases. We have developed an extensive pipeline of therapies across multiple indications within these core focus areas. We believe that our array of technology platforms uniquely positions us among other biotechnology companies to advance precision medicine. Precision medicine is the practice of therapeutic product development that takes into account specific genetic variations within populations impacted by a disease to design targeted therapies to improve outcomes for a disease or patient population. Our proprietary and complementary technology platforms provide a strong foundation to realize the core promise of precision medicine by supporting our efforts to construct powerful gene programs to drive efficacy, deliver these programs through viral, non-viral, and microbe-based approaches to drive lower costs, and control gene expression to drive safety. Our therapeutic platforms, including UltraCAR-T, AdenoVerse immunotherapy, and ActoBiotics, are designed to allow us to precisely control the level and physiological location of gene expression and modify biological molecules to control the function and output of living cells to treat underlying disease conditions. We are actively advancing our lead clinical programs, including: PRGN-3005 and PRGN-3006, which are built on our UltraCAR-T platform; and PRGN-2009 and PRGN-2012, which are based on our AdenoVerse immunotherapy platform. In addition, we have completed a Phase 1b/2a study of AG019, which is built on our ActoBiotics platform. We also have a robust pipeline of preclinical programs that we are pursuing in order to drive long-term value creation. We have developed a proprietary electroporation device, UltraPorator, designed to further streamline and ensure the rapid and cost-effective manufacturing of UltraCAR-T therapies. UltraPorator has receivedU.S. Food and Drug Administration , or FDA, clearance for manufacturing UltraCAR-T cells in clinical trials, and sinceNovember 2020 , we have been dosing patients with UltraCAR-T cells manufactured with UltraPorator in our PRGN-3005 and PRGN-3006 clinical trials. We exercise discipline in our portfolio management by systematically evaluating data from our preclinical programs in order to make rapid "go" and "no go" decisions. Through this process, we believe we can more effectively allocate resources to programs that we believe show the most promise and advance such programs to clinical trials.
Our Healthcare Business
Our healthcare business focuses on human therapeutics and developing research models and services for healthcare research applications. Our Biopharmaceuticals segment includes our wholly owned subsidiariesPGEN Therapeutics, Inc. , or PGEN Therapeutics, andPrecigen ActoBio, Inc. , or ActoBio, and our majority ownership interest inTriple-Gene LLC , doing business as Precigen Triple-Gene, or Triple-Gene, as well as royalty interests in therapeutics and therapeutic platforms from companies not controlled by us.Exemplar Genetics LLC , doing business as Precigen Exemplar, or Exemplar, is a wholly owned subsidiary which is focused on developing research models and services for healthcare research applications. Biopharmaceuticals PGEN Therapeutics PGEN Therapeutics is a dedicated discovery and clinical stage biopharmaceutical company advancing the next generation of gene and cell therapies using precision technology to target urgent and intractable diseases in immuno-oncology, autoimmune 31
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disorders and infectious diseases. PGEN Therapeutics operates as an innovation engine, progressing a preclinical and clinical pipeline of well-differentiated therapies toward clinical proof-of-concept and commercialization. PGEN Therapeutics is developing therapies primarily built on our UltraCAR-T therapeutics platform and our "off-the-shelf" AdenoVerse immunotherapy platform. Through our UltraCAR-T therapeutics platform, we are able to precision-engineer UltraCAR-T cells to produce a homogeneous cell product that simultaneously expresses antigen-specific chimeric antigen receptor, or CAR, kill switch, and our proprietary membrane-bound interleukin-15, or mbIL15, genes in any genetically modified UltraCAR-T cell. Our decentralized and rapid proprietary manufacturing process allows us to manufacture UltraCAR-T cells overnight at a medical center's current good manufacturing practices facility, or cGMP, and reinfuse the patient the following day after gene transfer. This process improves upon current approaches to CAR-T manufacturing, which require extensive ex vivo expansion following viral vector transduction to achieve clinically relevant cell numbers that we believe can result in the exhaustion of CAR-T cells prior to their administration, limiting their potential for persistence in patients. We have developed a proprietary electroporation device, UltraPorator, designed to further streamline and ensure the rapid and cost-effective manufacturing of UltraCAR-T therapies. The UltraPorator system includes proprietary hardware and software solutions and potentially represents major advancements over current electroporation devices by significantly reducing the processing time and contamination risk. UltraPorator is intended to be a viable scale-up and commercialization solution for decentralized UltraCAR-T manufacturing. Our AdenoVerse immunotherapy platform utilizes a library of proprietary adenovectors for the efficient gene delivery of therapeutic effectors, immunomodulators, and vaccine antigens. We have established proprietary manufacturing cell lines and production methodologies from our AdenoVerse immunotherapy platform, which we believe are easily scalable for commercial supply. We believe that our proprietary gorilla adenovectors, part of the AdenoVerse technology, have superior performance characteristics as compared to current competition, including standard human adenovirus serotype 5, rare human adenovirus types and other non-human primate adenovirus types.
The most advanced programs within PGEN Therapeutics are as follows:
PRGN-3005 is a first-in-class, investigational autologous CAR-T therapy that utilizes our UltraCAR-T platform to simultaneously express a CAR targeting the unshed portion of the Mucin 16 antigen, mbIL15, and kill switch genes. PRGN-3005 is currently being evaluated in a Phase 1/1b clinical trial for the treatment of advanced, recurrent platinum-resistant ovarian , fallopian tube, or primary peritoneal cancer. InJanuary 2022 , we announced the completion of enrollment in the dose escalation phase of both IP and IV arms without lymphodepletion in the ongoing Phase 1 clinical trial. We have received FDA clearance to incorporate lymphodepletion at Dose Level 3 of the IV arm. PRGN-3006 is a first-in-class, investigational autologous CAR-T therapy that utilizes our UltraCAR-T platform to express a CAR to target CD33 (Siglec-3), mbIL15 and a kill switch gene. PRGN-3006 is currently being evaluated in a Phase 1/1b clinical trial for the treatment of relapsed or refractory, or r/r, acute myeloid leukemia, or AML, high-risk myelodysplastic syndromes, or MDS, and chronic myelomonocytic leukemia, or CMML. InJanuary 2022 , we announced the completion of enrollment in the dose escalation phase in both the non-lymphodepletion and the lymphodepletion cohorts of this Phase 1 trial. An expansion phase is planned at the MTD. OnApril 4, 2022 , we announced that PRGN-3006 was granted Fast Track designation in patients with r/r AML by the FDA. Previously PRGN-3006 was granted Orphan Drug Designation in patients with AML by the FDA. PRGN-3007 is a first-in-class, investigational autologous CAR-T therapy that utilizes the next generation UltraCAR-T platform to express a CAR to target ROR1, mbIL15, kill switch, and a novel mechanism for the intrinsic blockade of the programmed death 1, or PD-1, gene expression. PRGN-3007 has received FDA clearance to initiate a Phase 1/1b clinical trial for patients with advanced receptor tyrosine kinase-like orphan receptor 1-positive, or ROR1+, hematological (Arm 1) and solid tumors (Arm 2). The target patient population for Arm 1 includes relapsed or refractory CLL, relapsed or refractory MCL, relapsed or refractory B-ALL, and relapsed or refractory DLBCL. The target patient population for Arm 2 includes locally advanced unresectable or metastatic histologically confirmed TNBC. The study will enroll in two parts: an initial 3+3 dose escalation in each arm followed by a dose expansion at the maximum tolerated dose. Arm 1 and Arm 2 will enroll in parallel. PRGN-2009 is a first-in-class, "off-the-shelf" investigational immunotherapy designed to activate the immune system to recognize and target human papillomavirus-positive, or HPV+, solid tumors. PRGN-2009 leverages our UltraVector and AdenoVerse platforms to optimize HPV type 16 and HPV type 18, antigen design for delivery via a proprietary gorilla adenovector with a large genetic payload capacity and the ability for repeat administrations. PRGN-2009 is in a Phase 1/2 clinical trial as a monotherapy or in combination with bintrafusp alfa, or M7824, an investigational bifunctional fusion protein, for patients with HPV-associated cancers in collaboration with theNational Cancer Institute , or NCI, pursuant to a cooperative research and development arrangement, or CRADA. PRGN-2012 is a first-in-class, investigational "off-the-shelf" AdenoVerse immunotherapy for the treatment of recurrent respiratory papillomatosis, or RRP. PRGN-2012 is an innovative therapeutic vaccine with optimized antigen design that uses our gorilla adenovector technology, part of our proprietary AdenoVerse platform, to elicit immune responses directed against 32 -------------------------------------------------------------------------------- Table of Contents cells infected with HPV type 6 and HPV type 11. PRGN-2012 is in a Phase 1/2 clinical trial for adult patients with RRP. PRGN-2012 is being developed in collaboration with theCenter for Cancer Research at the NCI pursuant to a CRADA. PRGN-2012 has been granted Orphan Drug designation for treatment of RRP by the FDA. In addition to our clinical programs, PGEN Therapeutics has a robust pipeline of preclinical programs in our core therapeutic areas of immune-oncology, infectious diseases, and autoimmune disorders that we are pursuing in order to drive long-term value creation. Our pipeline includes a number of product candidates, including UltraCAR-T therapeutics for various cancers, and "off-the-shelf" AdenoVerse therapeutic platforms. We expect to continue development of various preclinical programs to identify product candidates for evaluation in clinical trials.
ActoBio is pioneering a proprietary class of microbe-based biopharmaceuticals that enable expression and local delivery of disease-modifying therapeutics. We refer to these microbe-based biopharmaceuticals as ActoBiotics. Our ActoBiotics platform is a unique delivery platform precisely tailored for specific disease modification with the potential for superior efficacy and safety. ActoBiotics combine the advantages of highly selective protein-based therapeutic agents with local delivery by the well-characterized and food-grade bacterium Lactococcus lactis, or L. lactis. ActoBiotics can be delivered orally in a capsule, through an oral rinse, or in a topical solution. We believe ActoBiotics have the potential to provide superior safety and efficacy via the sustained release of appropriate quantities of select therapeutic agents as compared to injectable biologics, while reducing the side effects commonly attributed to systemic delivery and corresponding peaks in concentration. ActoBiotics work via genetically modified bacteria that deliver proteins and peptides at mucosal sites, rather than the insertion of one or more genes into a human cell by means of a virus or other delivery mechanism. By foregoing this insertion, ActoBiotics allow "gene therapy" without the need for cell transformation. ActoBio's most advanced internal pipeline candidate, AG019, is a first-in-class disease modifying antigen-specific, investigational immunotherapy for the prevention, delay, or reversal of type 1 diabetes mellitus, or T1D. AG019 is an easy-to-take capsule formulation of ActoBiotics engineered to deliver the autoantigen human proinsulin, or hPINS, and the tolerance-enhancing cytokine human interleukin-10 to the mucosal lining of gastro-intestinal tissues in patients with T1D. We have completed a Phase 1b/2a clinical trial of AG019 for the treatment of early-onset T1D. The Phase 1b portion of the study evaluated the safety and tolerability of AG019 monotherapy administered as a single dose and repeated daily doses in adult and adolescent patients. The Phase 2a double-blind portion of the study investigated the safety and tolerability of AG019 in combination with teplizumab, or PRV-031. The primary endpoint of assessing safety and tolerability in both the Phase 1b AG019 monotherapy and the Phase 2a AG019 combination therapy has been met. AG019 was well-tolerated when administered to adults and adolescents either as monotherapy or in combination with teplizumab. A single 8-week treatment cycle of oral AG019 as a monotherapy and in combination with teplizumab showed stabilization or increase of C-peptide levels during the first 6 months post treatment initiation in recent-onset T1D.
Precigen Triple-Gene
Triple-Gene is a clinical stage gene therapy company focused on developing advanced treatments for complex cardiovascular diseases. Triple-Gene's most advanced candidate, INXN-4001, a non-viral triple-effector plasmid based on our UltraVector platform designed for constitutive expression of human S100A1, SDF-1a, and VEGF-165. INXN-4001 is engineered to address multiple pathways of heart failure. Utilizing a single plasmid comprising all three genes, instead of each individual gene on separately delivered plasmids, INXN-4001 can control for delivery and ensure expression of the three genes in all transfected cells. We have completed a first-in-human, open label Phase 1 study designed to evaluate the safety of retrograde coronary sinus infusion, or RCSI, of INXN-4001 in outpatient left ventricular assist device, or LVAD, recipients. The Phase 1 trial met the primary endpoints to evaluate safety and feasibility for INXN-4001.
Partnered Program
We have partnered withCastle Creek Biosciences, Inc. , or Castle Creek, to advance product candidates D-Fi (debcoemagene autoficel), formerly designated FCX-007, for the treatment of recessive dystrophic epidermolysis bullosa, or RDEB, and FCX-013 for the treatment of localized scleroderma. InOctober 2020 , Castle Creek announced the dosing of the first patient in the ongoing Phase 3 trial of D-Fi and the dosing of the first patient in the ongoing Phase 1/2 trial of FCX-013. The FDA has granted Orphan Drug designation to D-Fi for the treatment of Dystrophic Epidermolysis Bullosa, which includes RDEB. In addition, D-Fi has been granted Rare Pediatric Disease designation, Fast Track designation, and Regenerative Medicine Advanced Therapy designation by the FDA for treatment of RDEB. The FDA has granted Orphan Drug designation to 33 -------------------------------------------------------------------------------- Table of Contents FCX-013 for the treatment of localized scleroderma. In addition, FCX-013 has been granted Rare Pediatric Disease designation and Fast Track designation for the treatment of moderate to severe localized scleroderma. Pursuant to the collaboration, we licensed our technology platforms to Castle Creek for use in certain specified fields, and in exchange, we received and were entitled to certain access fees, milestone payments, royalties, and sublicensing fees related to the development and commercialization of product candidates. InMarch 2020 , we and Castle Creek terminated the original collaboration agreement by mutual agreement, with the parties agreeing that FCX-007 and FCX-013 would be treated as "Retained Products" under the terms of the original agreement. Castle Creek retains a license to continue to develop and commercialize the Retained Products within the field of use for so long as Castle Creek continues to pursue such development and commercialization, and we are also entitled to certain royalties with respect to the Retained Products.
Precigen Exemplar
Exemplar is committed to enabling the study of life-threatening human diseases through the development of MiniSwine Yucatan miniature pig research models and services, as well as enabling the production of cells and organs in its genetically engineered swine for regenerative medicine applications. Historically, researchers have lacked animal models that faithfully represent human diseases. As a result, a sizeable barrier has blocked progress in the discovery of human disease mechanisms; novel diagnostics, procedures, devices, prevention strategies and therapeutics; and the ability to predict in humans the efficacy of those next-generation procedures, devices, and therapeutics. Exemplar's MiniSwine models are genetically engineered to exhibit a wide variety of human disease states, which provides a more accurate platform to test the efficacy of new medications and devices.
Our Non-Healthcare Business
At
Trans Ova
Trans Ova is internationally recognized as a provider of industry-leading bovine reproductive technologies. Trans Ova offers bovine embryo transfer technologies, in addition to other advanced reproductive technologies, including in vitro fertilization, or IVF, sexed-semen, genetic preservation, and cloning. Through extensive research programs and applied science, Trans Ova has developed and implemented new technologies that, we believe, have helped to move the science of bovine genetic improvement forward. We are evaluating strategic alternatives to determine the optimal means to utilize these technology assets and Trans Ova's broad customer base and deep industry knowledge to maximize the value of the business for our shareholders, including a potential sale of the business, the development of collaborations with third parties, and other strategic opportunities.
COVID-19 Impact
COVID-19 has had and continues to have an extensive impact on the global health and economic environments. Furthermore, there is uncertainty regarding the duration and severity of the ongoing pandemic, and we could experience delays of other pandemic-related events that may adversely impact our clinical as well as preclinical pipeline candidates in the future.
We are also closely monitoring the impact of COVID-19 on all aspects of our businesses. Given the dynamic nature of these circumstances, the full impact of the COVID-19 pandemic on our ongoing business, results of operations, and overall financial performance cannot be reasonably estimated at this time.
The health and safety of our employees is of the utmost importance. We have implemented safety measures in our facilities for the well-being of our employees and visitors. These measures have permitted us to continue to advance our programs, with the ultimate goal of benefiting patients.
For more information regarding the risks associated with COVID-19 and its impact on our business, see "Risk Factors" in Part II - Item 1A.
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Discontinued Operations
Historically, we developed technology platforms for application across a variety of diverse end markets, including health, food, energy, and the environment. InJanuary 2020 , we announced that we were increasing our focus on our healthcare opportunities, which reflected our most advanced platforms, and in connection therewith, we divested a number of our non-healthcare assets (referred to collectively as the Transactions) and changed our name toPrecigen, Inc. In 2020, as a result of market uncertainty driven by the COVID-19 pandemic and the state of the energy sector raising significant challenges for the strategic alternatives pursued byMBP Titan, LLC , or MBP Titan, our methane bioconversion business, we suspended MBP Titan's operations, preserved certain of MBP Titan's intellectual property, terminated all of its personnel, and undertook steps to dispose of its other assets and obligations. The wind down of MBP Titan's activities was substantially complete byDecember 31, 2020 , with the final disposition of certain property and equipment and the facility operating lease occurring inJanuary 2021 . This discontinuation of operations represented the continuation of a strategic shift that we commenced in early 2020 to becoming a primarily healthcare company advancing technologies and products that address complex healthcare challenges. After the wind down of MBP Titan, certain assets and contractual obligations which were originally related to MBP Titan continue to be managed at thePrecigen corporate level. These remaining assets and contractual obligations include our equity interests in and collaboration agreements withIntrexon Energy Partners, LLC , orIntrexon Energy Partners , andIntrexon Energy Partners II, LLC , or Intrexon Energy Partners II, including the associated deferred revenue remaining under each collaboration agreement, as well as the associated intellectual property. See also "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report for additional discussion of our discontinued operations. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 4" appearing elsewhere in this Quarterly Report for a discussion ofIntrexon Energy Partners and Intrexon Energy Partners II.
Segments
As ofMarch 31, 2022 , our reportable segments were (i) Biopharmaceuticals, (ii) Exemplar, and (iii) Trans Ova. These identified reportable segments met the quantitative thresholds to be reported separately for the three months endedMarch 31, 2022 . Corporate expenses, which are not allocated to the segments and are managed at a consolidated level, include costs associated with general and administrative functions, including our finance, accounting, legal, human resources, information technology, corporate communication, and investor relations functions. Corporate expenses exclude interest expense, depreciation and amortization, gain or loss on disposals of assets, stock-based compensation expense, loss on settlement agreement, and equity in net loss of affiliates. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 18" appearing elsewhere in this Quarterly Report for a discussion of our reportable segments and Segment Adjusted EBITDA.
Financial overview
We have incurred significant losses since our inception. We anticipate that we may continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability. Our historical collaboration and licensing revenues were generated under a business model from which we have gradually transitioned, and we do not expect to expend significant resources servicing our historical collaborations in the future. We may enter into strategic transactions for individual platforms or programs in the future from which we may generate new collaboration and licensing revenues. We continue to generate product and service revenues through our Trans Ova and Exemplar subsidiaries, and in the three months endedMarch 31, 2022 , both of these subsidiaries generated positive Segment Adjusted EBITDA. Products currently in our clinical pipeline will require regulatory approval and/or commercial scale-up before they may commence significant product sales and operating profits. As we continue our efforts to focus our business and generate additional capital, we may be willing to enter into transactions involving one or more of our operating segments and reporting units for which we have goodwill and intangible assets. These efforts could result in us identifying impairment indicators or recording impairment charges in future periods. In addition, market changes and changes in judgements, assumptions, and estimates that we have made in assessing the fair value of goodwill could cause us to consider some portion or all of certain assets to become impaired. 35
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Sources of revenue
Historically, we have derived our collaboration and licensing revenues through agreements with counterparties for the development and commercialization of products enabled by our technologies. Generally, the terms of these collaborations provide that we receive some or all of the following: (i) technology access fees upon signing; (ii) reimbursements of costs incurred by us for our research and development and/or manufacturing efforts related to specific applications provided for in the collaboration; (iii) milestone payments upon the achievement of specified development, regulatory and commercial activities; and (iv) royalties on sales of products arising from the collaboration. Our technology access fees and milestone payments may be in the form of cash or securities of the collaborator. Our collaborations contain multiple arrangements, and we typically defer revenues from the technology access fees and milestone payments received and recognize such revenues in the future over the anticipated performance period. We are also entitled to sublicensing revenues in those situations where our collaborators choose to license our technologies to other parties. As we continue to shift our focus on our healthcare business, we have and may continue to mutually terminate collaboration agreements or repurchase rights to the exclusive fields from collaborators, relieving us of any further performance obligations under the agreement. Upon such circumstances or when we determine no further performance obligations are required of us under an agreement, we may recognize any remaining deferred revenue as either collaboration revenue or as a reduction of operating expense, depending on the circumstances. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 5" appearing elsewhere in the Quarterly Report for a discussion of changes to our significant collaborations. We generate product and service revenues primarily through sales of products or services that are created from technologies developed or owned by us. Our primary current revenues arise from Trans Ova and include sales of advanced reproductive technologies, including our bovine embryo transfer and IVF processes and from genetic preservation and sexed semen processes, and applications of such processes to other livestock, as well as sales of livestock and embryos produced using these processes and used in production. Exemplar also generates product and service revenues through the development and sale of genetically engineered miniature swine models. We recognize revenue when control of the promised product is transferred to the customer or when the promised service is completed. In future periods, in connection with our focus on healthcare, our revenues will primarily depend on our ability to advance and create our own programs and the extent to which we bring products enabled by our technologies to market. Other than for collaboration revenues recognized upon cancellation or modification of an existing collaboration or for revenues generated pursuant to future strategic transactions for any of our existing platforms or programs, we expect our collaboration revenues will continue to decrease in the near term. Our revenues will also depend upon our ability to maintain or improve the volume and pricing of Trans Ova's and Exemplar's current product and service offerings and to develop and scale up production of new offerings from the various technologies of our subsidiaries. As we focus on our healthcare business, we anticipate that our expenses will increase substantially if, and as, we continue to advance the preclinical and clinical development of our existing product candidates and our research programs. We expect a significant period of time could pass before commercialization of our various product candidates or before the achievement of contractual milestones and the realization of royalties on product candidates commercialized under our collaborations and revenues sufficient to achieve profitability. Accordingly, there can be no assurance as to the timing, magnitude, and predictability of revenues to which we might be entitled.
Cost of products and services
Cost of products and services includes primarily labor and related costs, drugs and supplies used primarily in Trans Ova's embryo transfer and IVF processes, livestock and feed used in production, and facility charges, including rent and depreciation. Fluctuations in the price of livestock and feed have not had a significant impact on our operating margins and no derivative financial instruments are used to mitigate the price risk.
Research and development expenses
We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:
•salaries and benefits, including stock-based compensation expense, for personnel in research and development functions;
•fees paid to consultants and contract research organizations who perform research on our behalf and under our direction;
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•costs related to laboratory supplies used in our research and development efforts and acquiring, developing, and manufacturing preclinical study and clinical trial materials;
•costs related to certain in-licensed technology rights or reacquired in-process research and development;
•amortization of patents and related technologies acquired in mergers and acquisitions; and
•facility-related expenses, which include direct depreciation costs and unallocated expenses for rent and maintenance of facilities and other operating costs.
Our research and development expenses are generally incurred by our reportable segments and primarily relate to either costs incurred to expand or otherwise improve our technologies or the costs incurred to develop our own products and services. Our Biopharmaceuticals segment is progressing preclinical and clinical programs that target urgent and intractable diseases in our core therapeutic areas of immuno-oncology, autoimmune disorders, and infectious diseases, including PRGN-3005, PRGN-3006, PRGN-2009, PRGN-2012, and AG019. Exemplar's research and development activities relate to new and improved pig research models. Trans Ova's research and development activities support new and improved product and service offerings for its customers. The following table summarizes our research and development expenses incurred by reportable segment and reconciles those expenses to research and development expenses on the condensed consolidated statements of operations for the three months endedMarch 31, 2022 and 2021. Three Months Ended March 31, 2022 2021 Biopharmaceuticals$ 11,718 $ 10,063 Exemplar 83 74 Trans Ova 961 385 Total research and development expenses from reportable segments 12,762 10,522 Eliminations (2) (1) Total consolidated research and development expenses
The amount of research and development expenses may be impacted by, among other things, the number and nature of our own proprietary programs, and the number and size of programs we may support on behalf of collaboration agreements. We expect that our research and development expenses will increase as we continue to develop our own proprietary programs, including progression of these programs into preclinical and clinical stages. We believe these increases will likely include increased costs paid to consultants and contract research organizations and increased costs related to laboratory supplies. Research and development expenses may also increase as a result of in-licensing of technologies or ongoing research and development operations that we might assume through mergers and acquisitions.
Selling, general and administrative expenses
Selling, general and administrative, or SG&A, expenses consist primarily of salaries and related costs, including stock-based compensation expense, for employees in executive, operational, finance, information technology, legal, and corporate communications functions. Other significant SG&A expenses include rent and utilities, insurance, accounting, and legal services (including the cost of settling any claims and lawsuits), and expenses associated with obtaining and maintaining our intellectual property.
SG&A expenses may fluctuate in the future depending on the scaling of our corporate functions required to support our corporate initiatives and the outcomes of legal claims and assessments against us.
Other income (expense), net
Interest income consists of interest earned on our cash and cash equivalents and
short-term and long-term investments and may fluctuate based on amounts invested
and current interest rates.
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Interest expense decreased in the current period, and is expected to decrease in future periods upon the adoption of a new accounting standard effectiveJanuary 1, 2022 , which simplified the accounting for the Convertible Notes. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 2" appearing elsewhere in this Quarterly Report for further discussion.
Equity in net income (loss) of affiliates
Equity in net income or loss of affiliates is our pro-rata share of our equity method investments' operating results, adjusted for accretion of basis difference. We account for investments in our JVs using the equity method of accounting since we have the ability to exercise significant influence, but not control, over the operating activities of these entities.
Segment performance
We use Segment Adjusted EBITDA as our primary measure of segment performance. We
define Segment Adjusted EBITDA as net income (loss) before (i) interest expense,
(ii) income tax expense or benefit, (iii) depreciation and amortization, (iv)
stock-based compensation expense, (v) loss on settlement agreements where
noncash consideration is paid, (vi) adjustments for accrued bonuses paid in
equity awards, (vii) gain or loss on disposals of assets, (viii) loss on
impairment of goodwill and other noncurrent assets, (ix) equity in net loss of
affiliates, and (x) recognition of previously deferred revenue associated with
upfront and milestone payments as well as cash outflows from capital
expenditures and investments in affiliates, but includes proceeds from the sale
of assets in the period sold. Corporate expenses are not allocated to the
segments and are managed at a consolidated level. See "Notes to the Condensed
Consolidated Financial Statements (Unaudited) - Note 18" appearing elsewhere in
this Quarterly Report for further discussion of Segment Adjusted EBITDA.
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Results of operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months endedMarch 31, 2022 and 2021, together with the changes in those items in dollars and as a percentage: Three Months Ended March 31, Dollar Percent 2022 2021 Change Change (In thousands) Revenues Collaboration and licensing revenues $ -$ 66 $ (66) (100.0) % Product revenues 8,724 6,381 2,343 36.7 % Service revenues 23,209 17,931 5,278 29.4 % Other revenues 88 133 (45) (33.8) % Total revenues 32,021 24,511 7,510 30.6 % Operating expenses Cost of products 7,510 5,574 1,936 34.7 % Cost of services 9,589 7,402 2,187 29.5 % Research and development 12,760 10,521 2,239 21.3 % Selling, general and administrative 19,576 18,702 874 4.7 % Impairment of goodwill 482 - 482 N/A Total operating expenses 49,917 42,199 7,718 18.3 % Operating loss (17,896) (17,688) (208) 1.2 % Total other expense, net (1,412) (4,205) 2,793 (66.4) % Equity in net loss of affiliates (1) (3) 2 (66.7) % Loss from continuing operations before income taxes (19,309) (21,896) 2,587 (11.8) % Income tax benefit 58 52 6 11.5 % Loss from continuing operations (19,251) (21,844) 2,593 (11.9) % Income from discontinued operations, net of income taxes (1) - 4,526 (4,526) (100.0) % Net loss$ (19,251) $ (17,318) $ (1,933) 11.2 %
(1)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report.
Product revenues and gross margin
Product revenues increased$2.3 million , or 37%, over the three months endedMarch 31, 2021 . The increase in product revenue was primarily due to higher customer demand for animals as a result of stronger beef and dairy industries in the current year. Gross margin on products improved in the current period as a result of the increased revenues and increased focus on selling higher margin products.
Service revenues and gross margin
Service revenues increased$5.3 million , or 29%, over the three months endedMarch 31, 2021 . Trans Ova's revenues improved primarily due to an increase in services performed as a result of higher customer demand as the beef and dairy industries have been stronger in the current year and a change in pricing structure with certain customers. Additionally, Exemplar's service revenues improved in the current period due to an increase in services performed resulting from a higher demand from existing and new customers as well as a combination of price increases and a change in the pricing structure with certain customers. Gross margin on services remained comparable to the prior year as increased revenues were offset by increased costs for supplies, drugs, and personnel costs. 39
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Research and development expenses
Research and development expenses increased
Selling, general and administrative expenses
SG&A expenses increased$0.9 million , or 5%, over the three months endedMarch 31, 2021 . Professional fees increased$1.6 million , primarily due to increased legal fees associated with certain litigation matters. This increase was partially offset with a decrease in salaries, benefits, and other personnel costs of$1.3 million primarily due to reduced stock compensation in 2022 and reduced head count. Total other expense, net Total other expense, net, is comprised primarily of interest expense associated with our Convertible Notes issuedJuly 2018 . The current period decrease is primarily due to the adoption of a new accounting standard effectiveJanuary 1, 2022 noted above, which simplified the accounting for the Convertible Notes and reduced non-cash interest expense.
Segment performance
The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the three months endedMarch 31, 2022 and 2021, for each of our reportable segments as well as unallocated corporate costs. Three Months Ended March 31, Dollar Percent 2022 2021 Change Change (In thousands) Segment Adjusted EBITDA: Biopharmaceuticals$ (11,620) $ (8,854) $ (2,766) (31.2) % Exemplar 3,558 1,806 1,752 97.0 % Trans Ova 5,397 6,421 (1,024) (15.9) % Unallocated corporate costs (10,060) (8,194) (1,866) 22.8 %
For a reconciliation of Segment Adjusted EBITDA to net loss from continuing operations before income taxes, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 18" appearing elsewhere in this Quarterly Report.
The following table summarizes revenues from external customers for the three
months ended
Three Months Ended
March 31, Dollar Percent
2022 2021 Change Change
(In thousands)
Biopharmaceuticals $ 84 $ 178 $ (94) (52.8) %
Exemplar 5,429 3,257 2,172 66.7 %
Trans Ova 26,508 21,076 5,432 25.8 %
Biopharmaceuticals
Segment Adjusted EBITDA declined as we had increased costs associated with the advancement of our clinical and preclinical programs.
Exemplar
Revenues for Exemplar increased due to an increase in services performed resulting from a higher demand from existing and new customers. The improvement in Segment Adjusted EBITDA was primarily due to the increased revenues.
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Trans Ova
Revenues for Trans Ova increased primarily due to (i) higher customer demand for pregnant cows, (ii) more procedures performed as a result of stronger beef and dairy industries in the current year, and (iii) a change in the pricing structure with certain customers. Segment Adjusted EBITDA declined due to (i) increased costs for supplies and drugs, (ii) increased costs for certain legal matters, and (iii) increased salaries, benefits, and other personnel costs.
Unallocated Corporate Costs
Unallocated corporate costs increased primarily due to increased professional fees including legal fees associated with certain litigation matters.
Liquidity and capital resources
Sources of liquidity
We have incurred losses from operations since our inception, and as ofMarch 31, 2022 , we had an accumulated deficit of$1.9 billion . From our inception throughMarch 31, 2022 , we have funded our operations principally with proceeds received from private and public equity and debt offerings, cash received from our collaborators, and through product and service sales made directly to customers. As ofMarch 31, 2022 , we had cash and cash equivalents of$40.3 million and short-term and long-term investments of$101.7 million . Cash in excess of immediate requirements is typically invested primarily in money market funds andU.S. government debt securities in order to maintain liquidity and preserve capital.
We currently generate cash receipts primarily from sales of products and services and from strategic transactions.
Trans Ova is subject to certain restrictive covenants under its line of credit, which matured onApril 1, 2022 , which is discussed in "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 11" appearing elsewhere in this Quarterly Report. As ofMarch 31, 2022 , Trans Ova was in compliance with these debt covenants. Cash flows The following table sets forth the significant sources and uses of cash for the periods set forth below: Three Months Ended March 31, 2022 2021 (In thousands) Net cash provided by (used in): Operating activities$ (18,783) $ (16,384) Investing activities 16,568 (129,102) Financing activities (163) 121,040
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(230) (11)
Net decrease in cash, cash equivalents, and restricted cash $
(2,608)
Cash flows from operating activities:
During the three months endedMarch 31, 2022 , our net loss was$19.3 million , which includes the following significant noncash expenses totaling$7.5 million from continuing operations: (i)$3.6 million of stock-based compensation expense, (ii)$3.3 million of depreciation and amortization expense, and (iii)$0.6 million of shares issued as payment for services. During the three months endedMarch 31, 2021 , our net loss was$17.3 million , which includes the following significant noncash expenses totaling$12.3 million from both continuing and discontinued operations: (i)$5.4 million of stock-based compensation expense, (ii)$3.5 million of depreciation and amortization expense, (iii)$2.8 million accretion of debt discount and amortization of deferred financing costs, and (iv)$0.6 million of shares issued as payment for services. These expenses were partially offset by a$4.6 million noncash gain recognized upon the termination of our MBP Titan facility lease inJanuary 2021 . 41
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Our cash outflows from operations during the three months endedMarch 31, 2022 increased$2.4 million from the three months endedMarch 31, 2021 primarily due to increased costs associated with the advancement of our clinical and preclinical programs.
Cash flows from investing activities:
During the three months ended
During the three months endedMarch 31, 2021 , we purchased$133.7 million of investments, net of maturities, primarily using the proceeds received from the underwritten public offering discussed below.
Cash flows from financing activities:
During the three months ended
During the three months ended
Future capital requirements
We believe our existing liquid assets will enable us to fund our operating expenses and capital requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including:
•progress in our research and development programs, as well as the magnitude of these programs;
•any delays or potential delays to our clinical trials as a result of the COVID-19 pandemic;
•the timing of regulatory approval of our product candidates and those of our collaborations;
•the timing, receipt, and amount of any payments received in connection with strategic transactions;
•the timing, receipt, and amount of upfront, milestone, and other payments, if any, from present and future collaborators, if any;
•the timing, receipt, and amount of sales and royalties, if any, from our product candidates;
•the timing and capital requirements to scale up our various product candidates and service offerings and customer acceptance thereof;
•our ability to maintain and establish additional collaborative arrangements and/or new strategic initiatives;
•the resources, time, and cost required for the preparation, filing, prosecution, maintenance, and enforcement of our intellectual property portfolio;
•strategic mergers and acquisitions, if any, including both the upfront acquisition cost as well as the cost to integrate, maintain, and expand the strategic target;
•the costs associated with legal activities, including litigation, arising in
the course of our business activities and our ability to prevail in any such
legal disputes; and
•the effects, duration, and severity of the ongoing COVID-19 pandemic and the
actions we have taken or may take in response, any of which could significantly
impact our business, operations, and financial results.
Until such time, if ever, as we can regularly generate positive operating cash
flows, we plan to finance our cash needs through a combination of equity
offerings, debt financings, government, or other third-party funding, strategic
alliances, sales of assets, and licensing arrangements. As the COVID-19 pandemic
continues to negatively impact the economy, our future access to capital on
favorable terms may be materially impacted. We may not be able to raise
sufficient additional funds on terms that are favorable to us, if at all. To the
extent that we raise additional capital through the sale of equity or
convertible debt securities,
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the ownership interests of our common shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Our current stock price may make it more difficult to pursue equity financings and lead to substantial dilution if the price of our common stock does not increase. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through strategic transactions, collaborations, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or to grant licenses on terms that may not be favorable to us. We are subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development, and clinical manufacturing of its product candidates. Our success is dependent upon our ability to continue to raise additional capital in order to fund ongoing research and development, adequately satisfy or renegotiate long-term debt obligations, obtain regulatory approval of our products, successfully commercialize our products, generate revenue, meet our obligations, and, ultimately, attain profitable operations. Our ability to achieve what is necessary for our success may be negatively impacted by the uncertainty caused by the COVID-19 pandemic.
See the section entitled "Risk Factors" in our Annual Report for additional risks associated with our substantial capital requirements.
Contractual obligations and commitments
The following table summarizes our significant contractual obligations and commitments from continuing operations as ofMarch 31, 2022 and the effects such obligations are expected to have on our liquidity and cash flows in future periods: Less Than More Than Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years (In thousands) Operating leases$ 15,838 $ 2,718 $ 5,035 $ 3,788 $ 4,297
Convertible debt (1) 200,000 - 200,000 - - Cash interest payable on convertible debt 10,500 7,000 3,500 - - Long-term debt, excluding convertible debt 3,105 355 752 814 1,184 Total$ 229,443 $ 10,073 $ 209,287 $ 4,602 $ 5,481 (1)See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Notes 11" appearing elsewhere in this Quarterly Report for further discussion of our convertible debt.
In addition to the obligations in the table above, as of
In conjunction with the formation of our JVs, we committed to making future capital contributions subject to certain conditions and limitations. As ofMarch 31, 2022 , our remaining capital contribution commitments to our JVs were$14.2 million . These future capital contributions are not included in the table above due to the uncertainty of the timing and amounts of such contributions. We are party to in-licensed research and development agreements with various academic and commercial institutions where we could be required to make future payments for annual maintenance fees as well as for milestones and royalties we might receive upon commercial sales of products that incorporate their technologies. These agreements are generally subject to termination by us and therefore no amounts are included in the tables above. As ofMarch 31, 2022 , we also had research and development commitments with third parties totaling$22.7 million that had not yet been incurred. 43
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Net operating losses
As ofMarch 31, 2022 , we had net operating loss carryforwards of approximately$861.0 million forU.S. federal income tax purposes available to offset future taxable income, including$609.0 million generated after 2017,U.S. capital loss carryforwards of$212.5 million , andU.S. federal and state research and development tax credits of approximately$11.3 million , prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382. Net operating loss carryforwards generated prior to 2018 have begun to expire in 2022, and capital loss carryforwards will expire if unutilized beginning in 2024. Our foreign subsidiaries included in continuing operations have foreign loss carryforwards of approximately$74.2 million , most of which do not expire. Excluding certain deferred tax liabilities totaling$2.4 million , our remaining net deferred tax assets, which primarily relate to these loss carryforwards, are offset by a valuation allowance due to our history of net losses. As a result of our past issuances of stock, as well as due to prior mergers and acquisitions, certain of our net operating losses have been subject to limitations pursuant to Section 382. As ofMarch 31, 2022 ,Precigen has utilized all net operating losses subject to Section 382 limitations, other than those losses inherited via acquisitions. As ofMarch 31, 2022 , approximately$42.1 million of available domestic net operating losses were inherited via acquisitions and are limited based on the value of the target at the time of the transaction. Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements as defined under
Critical accounting policies and estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with generally accepted accounting principles inthe United States . The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report.
Recent accounting pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 2" appearing elsewhere in this Quarterly Report.
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