PGEN - Precigen: Big Ambitions But Outstanding Funding Concerns

2023-12-18 08:08:27 ET

Summary

• Precigen is a biopharmaceutical company with ambitions to develop cell therapy and gene engineering platforms for various markets.
• They are currently focusing on CAR-T cell therapy, AdenoVerse Immunotherapy, ActoBiotics, and Multifunctional Therapeutics technology.
• The company faces financial challenges and will require significant funding before their pipeline can be commercialized, which is all still very early stage.
• The loss of optionality and limited cash balances interacting with a tough funding environment and reflexivity risks make this a pass, despite rather large markets compared to the current valuation.

Precigen ( PGEN ) is an interesting company with a modest swine model service business for medicinal research, some underlying expertise, and great ambitions to develop several cell therapy and gene engineering platforms to tackle some interesting markets, including stepping up the CAR-T game. While the CAR-T market alone can be valued by looking at valuations for Bristol-Myers Squibb ( BMY ), which is more than $125 billion in EV and $6 billion in CAR-T of annual revenue growing very fast, they are still in the early innings, and we have to focus on the fact that they need a lot more cash and will dilute a whole lot more before getting their pipeline commercialised. It will take years, and while the funding environment should be improving on Fed dovishness, it's still a tall order here.

Product and Innovation

When we think about genetic engineering, gene and cell therapies, we always associate it with something that is complex and not understandable. Although the technology can be quite abstract for the ordinary people who are not in the field, but thanks to conversations with people in the field it can be explained in the following quite a straightforward way.

Precigen is a biopharmaceutical company which has a broad spectrum of actions when it comes to gene and cell therapies that it is developing. They are using a few technology concepts which are quite interesting from a scientifical perspective: UltraCAR-T Therapeutic Platform, The AdenoVerse Immunotherapy, ActoBiotics Advantage, and Multifunctional Therapeutics technology. All of their therapies are currently at various points in Phase I trials, with the ActoBiotics therapy just starting in Phase II.

In general, the concept of CAR-T cell (chimeric antigen receptor T cell) therapy, an "ex vivo" gene therapy (which is commonly used to fight different types of cancers) is to make genetically modified T-cells which will be able to specifically target cancer cells and kill them. Bristol-Myers Squibb has a lot of these sorts of therapies, and its market value is in the hundreds of billions, $6 billion annual revenue with high CAGRs. This is possible by using key concepts of molecular biology and, of course, a key tools - plasmids. Usually, viral plasmids are in use in practice, genetically modified in such a way that they cannot cause infection in humans and at the same time are able to deliver desired genes in the system.

UltraCAR-T Technology is basically improved CAR-T cell therapy. The main differences from "standard" version of CAR-T cell manufacturing is that Precigen uses vector technology which gives them the opportunity to insert multiple genes in non-viral transposon DNA efficiently, which is further inserted in the cells. They are using a device which is exclusive to them - electroporation system UltraPorator. The result of their approach is, as the company states , an easier and quicker manufacturing process, which produces more durable modified T-cells, and also costs less.

"Standard" CAR-T cell therapy has shown good results over the years in treating hematologic cancers but faces challenges to be a good and reliable therapeutic option for solid tumors. If, for example, Precigen manages to improve the manufacturing process of the T-cells on such a level that curing solid tumors starts to show positive results, it would be a huge step forward.

Then there's the AdenoVerse Immunotherapy . As the name suggests, they are using genetically modified Adenoviruses (which can't cause an infection) as a vector for inserting desired genes into the patient's immune cells, which is part of the existing gene therapy theory. Precigen's treatments then make it so that these immune cells then begin to express molecules of the interest on their surface for dealing with a wide range of immune-oncology diseases, as well as infectious diseases. Precigen uses gorilla adenovectors, mainly because the human immune system can't recognize it (therefore can't neutralize it). Due to those reasons, these adenovectors are suitable for multiple applications.

Product candidates based on this therapeutic platform are mainly oriented on targeting HPV (Human Papilloma Virus) infections and diseases triggered by the virus, such as respiratory papillomatosis and HPV-associated cancers. Direct medical burden here is already around $1 billion annually in the treatment of these related diseases.

Another therapeutic platform, The ActoBiotics , has a really interesting approach. It uses the bacteria Lactococcus lactis (L. lactis) as a vector for its goals. It is a well-known bacteria which undergoes genetic modifications. The aim is to insert desired genes into the DNA of bacteria, enabling the translation of these genes into the desired proteins, which acts as therapeutic molecules. What makes them interesting is the concept of local and topical application (targeting mainly oral and intestinal mucosa) of the therapeutic product. Avoiding systemic administration, adverse effects are immediately significantly reduced. Considering the administration method, these products can be used as mouthwash solutions or oral capsules in the treatment of infectious diseases of the oral and gastrointestinal mucosa.

Last but not least, the Multifunctional therapeutic platform is focused on enhancing the response of a form of immunotherapy called Checkpoint Inhibitors Therapy in oncology. Many oncology patients have weak response on this form of Immunotherapy, probably due to T-cells' mild activation and their weak migration to the cancer microenvironment. Precigen has an idea to make a genetically recombined product, whose role would be to enhance this response by interfering with immunological pathways. It's a little bit adjuvant and last line, but it's not bad at all of a market considering how much immunotherapy is picking up now in oncology.

It is clear that this problem is really important, and potential success would be a boost for Immunotherapeutic treatment.

Financial Conclusions

The company's situation is a little unusual. Look at their revenue, it is actually not technically a pre-revenue company and has had a lot more revenue before than it does now.

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.

From the latest 10-Q

Since these agreements have been ended either through acquisitions of collaborators like Intrexon, the remaining revenue which is quite limited is coming from their Exemplar business, which involves the engineering of valid swine models for medicinal research work on useful human analogues. This is actually a service business.

The loss of the optionality and capital lightness of the collaboration agreements, in combination with challenges in the general funding environment, has definitely tanked the stock, which is in the range of all-time lows.

While it's better than nothing, it isn't offsetting the massive investments going into R&D spending around $50 million annualised. They have a lot of therapies in development, based on their three platforms. Biotech companies like this tend to have nice economics once they have their biotech platforms up and running, but it will take a very long-time in order for these therapies to come to fruition. Each platform will take billions in total, and they are in the very early innings.

They have around $70 million in cash and cash equivalents but are burning almost $60 million in cash per year, so they have somewhat of a problem as in a year's time they will need to raise more cash.

The good news is that the funding environment for biotech, and the general funding environment for VCs, should be improving now that the Fed has signaled that the end of very high rates should be over beginning in 2024, although we are not sure that the improvement will be enough to actually make the funding environment good for companies like Precigen. All-time low prices cement the possible reflexivity risks. While the low prices mean we can ignore a little any equity compensation agreements outstanding, it does mean that dilution can be substantial. With a $300 million market cap, and it requiring more than $2 billion ( always the rule of thumb ) to develop a platform, current holders are going to get diluted to having a fraction of initial ownership, possibly as extreme as 85% dilution if the company doesn't expand current cash flows before a single one of the innovative gene therapy platforms actually hit the market. That's the issue here, with the only trading upside perhaps being that recent dovishness may not be reflected in prices, which is not something we'd trade on where there are substantial fundamental risks here. There is a legitimate going concern risk here, and we'll pass despite the billions of dollars in annual revenues and burden that you can value its many markets by, at least $7 billion just this year.

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