MRK - Precigen: Will Financing Issues Forever Cloud The Promise?

Summary

• Last week's PRGN-2012 results were impressive and perhaps the first genuine validation of the AdenoVerse therapeutic platform.
• Though it did retire $157 million in convertible notes in late 2022, Precigen has a mediocre balance sheet and the ticker moves with jerk-neck volatility.
• Last week could be structural bottom of sorts, but there are two future events that give me pause.

The age-old question in biotech – “Will the science deliver before the money runs out”-- always seems to take on greater saliency with Precigen (PGEN). Ideally, this 25 year old company should be leveraging its years of synthetic biology experience to optimize the biological process and surpass competitors with precision medicines manufactured at the lowest cost and best efficiency. But things have played out differently.

On January 24, at 4:01PM, Precigen announced great results for its PRGN-2012 immunotherapy. And for approximately four minutes the stock spiked 15% from its $2.18 close. However, at 4:05 PM, the company separately reported that it was raising $75 million in capital at $1.75. Ouch . . ..

By mid-day January 25th, the stock had dropped 23%. Shareholders felt burned and social media was enflamed with righteous indignation over management’s apparent duplicity.

Yes, Precigen has a mediocre balance sheet and the ticker moves with jerk-neck volatility –it’s been a clear and present danger with this ticker for a decade– but the RRP data was excellent and arguably the first true validation for AdenoVerse as a therapeutic platform. Which of these two announcements is the greater tell –the PRGN-2012 data or the capital raise? Which is the true signal amid the noise? Is the data the suggestion of an ugly, but actionable bottom? Or is the management tactic a symptom of a permanently damaged company, a so-called “loser” as Jim Cramer described it on-air a few years ago? Exploring this question will be the central focus of this article.

Based in Germantown, MD, Precigen is a discovery and clinical-stage biotech advancing novel gene and cell therapies that target autoimmune disorders and infectious diseases. Founded in 1998, the company was formerly known as Intrexon for two decades, but in 2019-2020 it radically redefined itself and took the name of one of its subsidiaries (yes, Precigen). It sold off its non-health-care assets and the firm now focuses entirely on discovery and clinical development. From the standpoint of this new mission, the company is very new and was hit with the pandemic in the first year of its operation.

The company describes itself as “an innovation engine progressing a pre-clinical and clinical pipeline of well-differentiated unique therapies” with technologies that enable them to find innovative solutions for affordable biotherapeutics in a controlled manner. The company’s two main therapeutic platforms–AdenoVerse Immunotherapy and Ultra CAR-T– are ambitious and worth understanding.

AdenoVerse Immunotherapy

Based on technology developed by GenVec, Precigen's AdenoVerse platform differentiates itself from the gene therapies of competitors (Merck, Gracell, etc) on several levels: it has the ability to deliver larger genetic payloads with off-the-shelf availability (far lower prices); its library of Gorilla Adenovectors is accepted with very low seroprevalence ; and it offers the possibility for re-dosing; and it has a quick manufacturing process. With its versatility, the platform could theoretically be deployed against a whole multitude of monogenic and polygenic diseases.

Though overshadowed by the management shim sham, data presented for PRGN-2012 on January 24 was impressive. Safety looks good; the patients saw no grade 3+ adverse events. Though an early phase study, the results suggest the kind of clinical efficacy that would drive adoption of the treatment by doctors. Recurrent Respiratory Papillomatosis (RRP) is a disease with 16,000 active cases presently in the US; growths reoccur along the respiratory tract. Standard of care is repeat surgery.

In dose level two, PRGN-2012 reduced the number of surgeries in RRP patients by 50% in 58% of patients . This is notable. These were very severe, stricken patients that were getting an average of 6 to 7 surgeries a year –every six weeks– to remove the growths in their respiratory tracts! 50% of patients achieved a complete and durable response –no surgeries in the year following post-treatment and improvements in their Vocal Handicap scores.

These results substantiate a clinical efficacy for PRGN 2012 in cases of RRP. (They are appear better than competitor INO-3107 's percentage of patients that avoid all further surgery, though the contest remains). They would drive adoption of the treatment, and possibly other indications like anogenital condyloma. In addition to the 16,000 US cases, there are about 60,000 cases worldwide. PGEN estimates a peak market of $2 billion worldwide for the treatment. The massive reduction in surgeries and economic burden on patients make PRGN-2012 quite appealing.

In addition to the PRGN-2012 results last week, investors can expect Phase 1 PRGN-2009 within the next four months as a catalyst:

Ultra CAR-T:

CAR-T (Chimeric antigen receptor T) cell therapies have shown great promise for patients with Hematologic B cell cancers. The high cost and long delays due to its manufacturing has been a major obstacle, however, and the therapies also often exhaust quickly, which limits the duration of their anti-tumor response.

Precigen’s UltraCAR-T platform aims to change that by offering quick low cost manufacturing. UltraCAR-T is a multigenic autologous CAR-T platform that utilizes :

1. a non-viral Sleeping Beauty system to simultaneously express an antigen-specific CAR to specifically target tumor cells,

2. mbIL15 for enhanced in vivo expansion, slowed aging, and thus persistence

3. a kill switch to conditionally eliminate CAR-T if necessary.

The Sleeping Beauty system can deliver a large multigenic payload at very high efficiency, with the antigen binding, hinge and signaling domains of each CAR optimized for tumor cell killing based on the target expression profile. The result is a precision product that simultaneously expresses antigen-specific CAR, mbIL15 genes, and a kill switch.

It is the only platform that can reduce the whole process and treatment time to just one day. And the platform addresses the inhibitory tumor microenvironment without the need for complex gene editing techniques. Data presented at ASH in December by Novartis and Gracell suggest that –despite lower manufacturing times – in their treatment patients still have to wait weeks or months before they receive therapy. Precigen is adamant that it has a leg up on this front.

Last April Precigen received FDA Fast Track Designation for PRGN-3006 (r/r AML) and in December it reported positive Phase 1 does escalation data and good responses with Lymphodepletion:

Ultimately, PRGN-3006 presents a decent opportunity –with strong efficacy and safety data presented. Analysts generally see a r/r AML market opportunity of $1.25B (with a 12% CAGR) and for MDS, $2.3B (with a 10% CAGR).

Ultimately, most of the company’s next Ultra Car-T results come are expected in 2024:

Without going into every pipeline product, all in all, Precigen is targeting a total market sum of approximately $15.7 billion with an average CAGR of 10%. It is a large opportunity for a company looking to revolutionize the efficiency of drug development and the cost of manufacturing. And an ambitious agenda for a tiny company hobbled with financing issues and shorn of partnerships.

Financial Health:

Precigen keeps digging for cash. In January 2021, it had a capital raise of $129.4 million. Last summer it sold off subsidiary Trans Ova Genetics for $170 million and earn-outs totaling $10 million in FY2022 and FY2023, with the aim of advancing its pipeline. During this period, strategic partner Merck sold its 14% of shares of PGEN (never a good sign).

PGEN is currently unprofitable and expected to remain that way for the next three years. It has struggled with leftover debt impairment losses, though it did retire $157 million in convertible notes in late 2022, saving $5 million in interest and discount savings. As of Sept. 30, cash, cash equivalents, short-term investments and restricted cash were $153.8M .

Precigen has not achieved profitability for ten years; its revenues peaked back in 2017 at $219M. Mean analyst estimates today suggest a drop in revenue for the year ending December 2023 to $24.8 million from 2022’s $57.9 million. 4Q 2022 results –out February 28– are likely to disappoint:

Risks and Catalysts:

If you think that Precigen now has the financing to get through 2024, the promise of the pipeline might warrant an initial, nominal position. In this scenario, last week becomes an ugly structural bottom of sorts – the cash-strapped slog to commercialization continues but, with the AdenoVerse platform now having been validated, the stock doubles or triples from its present price as PRGN 2012 gets a FDA fast track approval later this year.

But I would wait. In addition to a likely downbeat February 28 earnings call, there is a lock-up agreement of certain restricted stock, common stock and options --ending on April 25, 2023. That might be a real ledge for this company.

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