PGEN - Precigen's Express Lane: Racing Towards RRP Remedies (Rating Upgrade)

2023-08-28 09:15:57 ET

Summary

• Precigen, a clinical-stage biopharmaceutical company, shows potential with flagship drug PRGN-2012 for RRP, given accelerated FDA processes.
• Despite financial challenges, the company's shift to in-house gene therapy manufacturing and strategic financial management seem promising.
• Based on clinical advancements and strategic initiatives, the investment recommendation is upgraded from "Hold" to a speculative "Buy".

Introduction

Precigen ( PGEN ) is a clinical-stage biopharmaceutical firm focusing on next-generation gene and cell therapies for immuno-oncology, autoimmune disorders, and infectious diseases. Leveraging precision technology, they innovate affordable, controlled biotherapeutics and advance a diverse therapeutic pipeline.

In my past analysis , I observed Precigen as an emerging innovator in the bio-pharmaceutical domain. Despite concerning financial metrics like falling revenues and continuous losses, there's more to the story. The company's clinical programs, especially PRGN-2012 and PRGN-2009, showed great promise, especially given positive interactions with the FDA and potential to address unmet medical needs. Their endeavors in HPV-related cancer treatments and potential advancements in CAR-T therapies using the UltraCAR-T platform further highlight their disruptive potential. However, there are significant uncertainties, such as trial outcomes and market dynamics. Weighing all factors, I recommended a "Hold" for investors considering Precigen's long-term prospects.

The following article reviews Precigen, a biopharmaceutical company, highlighting its promising therapies, financial data, and adjusted recommendation to a speculative "Buy" amidst risks.

Q2 Earnings Report

Looking at Precigen's most recent earnings report for Q2 2023, research and development expenses decreased by $0.1M, primarily from reduced preclinical research spending. SG&A expenses fell by $3.4M, largely from a $2.2M drop in legal fees and a $1.1M cut in personnel costs. Revenues were down by $1.1M, mainly due to service reductions at Exemplar. Total other income increased by $2.7M, chiefly from reduced interest expenses and increased investment interest. The loss from continuing operations was $20.3M, a decrease from $26.1M in Q2 2022.

Cash Runway & Liquidity

Turning to Precigen's balance sheet , the company had cash and cash equivalents, short-term investments, and long-term investments amounting to $16.5M, $71.9M, and $7.1M, respectively. The combined value for these assets is approximately $95.5M as of June 30, 2023. From the condensed consolidated statements of cash flows, the net cash used in operating activities over the six months ended June 30, 2023, is $43.1M, which translates to a monthly cash burn rate of approximately $7.2M. Given these values, the company's cash runway, derived by dividing its liquid assets by the monthly cash burn, is roughly 13.3 months. It's essential to highlight that these estimates and values are based on past data and may not reflect future performance.

Assessing the company's liquidity, Precigen's debt situation reveals that there isn't any current portion of long-term debt as of June 30, 2023. Considering its recent cash runway and the lack of short-term debt, it seems plausible that Precigen could secure additional financing if needed, especially if it continues to manage its cash and liabilities prudently. These observations and/or estimates are my own and might vary from other analyses.

Valuation, Growth, & Momentum

According to Seeking Alpha data, Precigen showcases a mixed financial landscape. Its capital structure reveals minimal debt compared to its market capitalization with an enterprise value of $361.52M. While its valuation is challenging to determine due to non-measurable metrics, the company is evidently pre-revenue, with limited sales but expects significant revenue growth by 2025 (+1,265.32% YoY). Stock momentum has been turbulent, underperforming the SP500 over a year but shows recent positive momentum over 3-6 months.

Considering Precigen's advancements in immuno-oncology and positive FDA interactions, it holds promise. However, given its developmental phase and future earnings potential, growth prospects are speculative but optimistic.

FDA and Precigen's Dance: Skipping Steps to Speed Treatments

In the first half of this year, Precigen has showcased substantial progress, particularly in regulatory areas. One key takeaway is the advancement of their flagship program, PRGN-2012, targeting Recurrent Respiratory Papillomatosis (RRP) – a rare orphan disease. This progress is significant because the FDA's decision to fast-track PRGN-2012's approval process suggests a high level of confidence in the drug's potential efficacy and safety. The exemption from a randomized control study not only slashes the developmental time but also implies an increased likelihood of it reaching the market sooner.

The mutual agreement between the FDA and Precigen to conduct just one confirmatory study before the Biologics License Application (BLA) submission further underscores this confidence. Their exploration of an additional exploratory arm is intriguing, hinting at an ambition to potentially expand PRGN-2012's indications.

Another critical point is Precigen's decision to establish its gene therapy manufacturing unit. This strategy aims to achieve multiple objectives: maintaining manufacturing quality, tapping into in-house expertise, and reducing dependency on third-party contractors, which can indeed expedite the drug's development timeline and cut costs.

Furthermore, Precigen's reallocation of resources and recalibration of its pipeline seems to be a tactical move to bolster savings. Their reduced spending on external Contract Research Organizations [CRO] and SG&A costs reflects a prudent financial approach. Moreover, the pursuit of non-dilutive funding avenues indicates their determination to ensure long-term fiscal health, targeting a financial horizon that extends beyond 2025.

My Analysis & Recommendation

As I wrap up my review on Precigen, a few salient insights emerge. Firstly, the FDA's decision to pave a clear & swift path toward marketing PRGN-2012 for RRP is game-changing for the company. Given that RRP remains a rare orphan disease, the drug's success can catapult Precigen into an enviable position within the biopharmaceutical arena, offering a potential lucrative revenue stream.

Investors should be on the lookout for updates regarding PRGN-2012's clinical trial results and further FDA interactions in the coming weeks and months. Any positive development here could act as a catalyst for Precigen's stock, while any hiccups or delays might temper the enthusiasm.

Commendably, Precigen isn't just resting on its laurels. Their proactive efforts to establish an in-house gene therapy manufacturing unit exhibit a long-term vision. By consolidating the production process and reducing third-party dependencies, the company not only fortifies its quality control but also showcases an adeptness in financial management. This strategic step positions them advantageously to potentially enhance their cash runway, crucial for a firm in such a cash-intensive sector.

Given the company's promising clinical advancements, strengthened by strategic financial management and the potential monumental shift from a pre-revenue phase to a revenue-generating entity, I'm adjusting my previous stance. It's evident that Precigen has positioned itself as a more appealing investment proposition. Therefore, with the above analysis in mind, I upgrade my recommendation from "Hold" to a speculative "Buy".

Risks to Thesis

When the facts change, I change my mind.

Potential oversights in my analysis of Precigen include:

1. Over-reliance on Regulatory Approvals: Just because the FDA has streamlined PRGN-2012’s approval doesn’t guarantee market success. Numerous therapies receive such acceleration but falter in later stages or post-market.

2. Underestimation of Manufacturing Challenges: Transitioning to in-house manufacturing isn't trivial. Delays, quality control issues, or regulatory hiccups can arise.

3. Market Dynamics Overlooked: The addressable market size for RRP and the pricing strategy for PRGN-2012 are crucial and weren't discussed. A small patient population may not justify large revenues.

4. Overemphasis on Short-term Finances: While the recent financial picture seems stable, long-term solvency concerns remain, especially with a significant cash burn.

5. Biases and Optimism: My optimistic outlook might be skewed by recent successes, overshadowing potential pitfalls in drug development, where failure rates are high.

6. Overlooking Competitive Landscape: No deep dive into competitors in the HPV-related cancer treatment space or gene therapy arena was conducted.

7. Mistaking Interactions for Outcomes: Positive FDA interactions don’t always translate to successful clinical trial outcomes.

For further details see: