Precigen(PGEN) - 2020 Q3 - Quarterly Report

SEC Filing Information This section provides standard SEC filing details for the Form 10-Q, including registrant information and filing status Form 10-Q Details This section provides the standard SEC filing information for the Form 10-Q, including the registrant's name, address, commission file number, and details about its common stock listing on the Nasdaq Global Select Market. It also confirms the registrant's filing status as a large accelerated filer and its compliance with SEC reporting requirements - Registrant: PRECIGEN, INC. (PGEN)[3][4] - Filing Type: Quarterly Report (Form 10-Q) for the period ended September 30, 2020[2] Filing Status: | Indicator | Status | | :--- | :--- | | Large accelerated filer | ☒ | | Filed all required reports (preceding 12 months) | Yes ☒ | | Submitted Interactive Data File (preceding 12 months) | Yes ☒ | Report Table of Contents This section outlines the detailed structure of the Form 10-Q, categorizing financial and other information with corresponding page numbers Report Structure This section presents the detailed table of contents for the Form 10-Q, outlining the structure of the financial information (Part I) and other information (Part II), along with corresponding page numbers for each item - The report is divided into two main parts: Part I - Financial Information (starting on page 5) and Part II - Other Information (starting on page 65)[7] Special Note Regarding Forward-Looking Statements This section provides a cautionary statement about forward-looking statements in the report, emphasizing potential material differences in actual results due to risks Forward-Looking Statements Disclaimer This section provides a cautionary statement regarding forward-looking statements contained within the report, highlighting that actual results may differ materially due to substantial risks and uncertainties. It lists various aspects of the company's strategy, future events, financial position, and market conditions that are considered forward-looking - The report contains forward-looking statements subject to substantial risks and uncertainties, and actual results may differ materially from disclosed plans[10][13] - Forward-looking statements cover strategy, future events, operations, financial position, revenue, costs, prospects, plans, management objectives, and expected market growth[10] - Key risk factors are detailed in Part II, Item 1A. "Risk Factors," and the company does not assume any obligation to update these statements[13][14] PART I - FINANCIAL INFORMATION This part contains the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period Item 1. Condensed Consolidated Financial Statements This item presents the unaudited condensed consolidated financial statements of Precigen, Inc. and its subsidiaries for the periods ended September 30, 2020, and December 31, 2019, including balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, along with accompanying notes - The financial statements are unaudited and prepared in accordance with U.S. GAAP, reflecting all normal recurring adjustments for fair statement[58] - Interim financial results are not necessarily indicative of full-year results[58] Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show the company's financial position as of September 30, 2020, compared to December 31, 2019, indicating a decrease in total assets and total liabilities, and a reduction in shareholders' equity Condensed Consolidated Balance Sheets (Amounts in thousands): | Item | Sep 30, 2020 | Dec 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $336,186 | $455,763 | $(119,577) | | Total Liabilities | $277,634 | $384,052 | $(106,418) | | Total Shareholders' Equity | $58,552 | $71,711 | $(13,159) | - Current assets held for sale decreased from $110,821 thousand in Dec 2019 to $0 in Sep 2020, reflecting the sale of bioengineering assets[18] - Cash and cash equivalents decreased from $65,793 thousand to $27,740 thousand, while short-term investments significantly increased from $9,260 thousand to $85,358 thousand[18] Condensed Consolidated Statements of Operations The condensed consolidated statements of operations show a significant reduction in net loss for both the three and nine months ended September 30, 2020, compared to the prior year, driven by increased revenues and substantial decreases in operating expenses, particularly research and development Condensed Consolidated Statements of Operations (Amounts in thousands): | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $23,583 | $18,299 | $83,845 | $73,720 | | Total Operating Expenses | $48,561 | $62,936 | $173,994 | $199,946 | | Operating Loss | $(24,978) | $(44,637) | $(90,149) | $(126,226) | | Net Loss | $(29,508) | $(53,634) | $(128,860) | $(154,701) | | Net Loss per Share (Basic & Diluted) | $(0.18) | $(0.35) | $(0.79) | $(1.00) | - Research and development expenses decreased by 52.6% for the three months and 44.0% for the nine months ended September 30, 2020, compared to the prior year[24] - Loss from discontinued operations significantly impacted the nine-month net loss in 2020 ($26,056 thousand) compared to 2019 ($20,442 thousand)[24] Condensed Consolidated Statements of Comprehensive Loss The condensed consolidated statements of comprehensive loss show a decrease in comprehensive loss for both the three and nine months ended September 30, 2020, compared to the prior year, primarily due to a reduction in net loss and a significant gain on foreign currency translation adjustments for the nine-month period Condensed Consolidated Statements of Comprehensive Loss (Amounts in thousands): | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $(29,508) | $(53,634) | $(128,860) | $(154,701) | | Other Comprehensive Income (Loss): | | | | | | Unrealized gain (loss) on investments | $(186) | $(25) | $86 | $81 | | Gain (loss) on foreign currency translation adjustments | $2,198 | $(4,871) | $1,787 | $(4,560) | | Release of cumulative foreign currency translation adjustments to loss from discontinued operations | $0 | $0 | $26,957 | $0 | | Comprehensive Loss | $(27,496) | $(58,530) | $(100,030) | $(159,180) | - A significant non-cash item for the nine months ended September 30, 2020, was the release of $26,957 thousand in cumulative foreign currency translation adjustments to loss from discontinued operations[29] Condensed Consolidated Statements of Shareholders' and Total Equity The condensed consolidated statements of shareholders' and total equity show a decrease in total shareholders' equity from $71,711 thousand at December 31, 2019, to $58,552 thousand at September 30, 2020, primarily due to net loss, partially offset by increases in additional paid-in capital from stock-based compensation, private placements, and debt conversions Changes in Shareholders' Equity (Amounts in thousands): | Item | Dec 31, 2019 Balance | 9 Months Ended Sep 30, 2020 Changes | Sep 30, 2020 Balance | | :--- | :--- | :--- | :--- | | Additional Paid-in Capital | $1,752,048 | +$86,871 | $1,838,919 | | Accumulated Deficit | $(1,652,869) | $(128,860) | $(1,781,729) | | Accumulated Other Comprehensive Income (Loss) | $(27,468) | +$28,830 | $1,362 | | Total Shareholders' Equity | $71,711 | $(13,159) | $58,552 | - Shares issued in a private placement contributed $35,000 thousand to additional paid-in capital during the nine months ended September 30, 2020[35] - Conversion of long-term debt resulted in the issuance of 6,293,402 shares and added $31,827 thousand to additional paid-in capital[35] Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows indicate a net decrease in cash, cash equivalents, and restricted cash of $40,257 thousand for the nine months ended September 30, 2020, primarily driven by cash used in operating and investing activities, partially offset by cash provided by financing activities Condensed Consolidated Statements of Cash Flows (Amounts in thousands): | Cash Flow Activity | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Operating Activities | $(60,552) | $(103,785) | | Investing Activities | $(12,405) | $32,342 | | Financing Activities | $32,777 | $6,939 | | Effect of exchange rate changes | $(77) | $(843) | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | $(40,257) | $(65,347) | | End of Period Cash, Cash Equivalents, and Restricted Cash | $28,177 | $44,835 | - Cash used in operating activities decreased significantly by $43,233 thousand, primarily due to reduced funding for divested businesses and streamlined operations[41][298] - Investing activities shifted from providing cash in 2019 to using cash in 2020, with significant purchases of investments ($171,360 thousand) and proceeds from the sale of discontinued operations ($64,240 thousand)[43] Notes to the Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements, offering explanations and additional information on the company's organization, significant accounting policies, discontinued operations, investments, revenue recognition, and various financial statement line items - The notes are an integral part of the financial statements, providing context and detail for the unaudited interim periods[48] 1. Organization Precigen, Inc. is a synthetic biology company increasingly focused on gene and cellular therapies for immuno-oncology, autoimmune disorders, and infectious diseases. It operates through wholly-owned subsidiaries like PGEN Therapeutics, ActoBio, Exemplar, Trans Ova, and Progentus, and has undergone significant divestitures, including bioengineering assets and AquaBounty, to sharpen its healthcare focus - Precigen is a synthetic biology company focusing on discovery and clinical stage gene and cellular therapies for immuno-oncology, autoimmune disorders, and infectious diseases[49] - Key wholly-owned subsidiaries include PGEN Therapeutics (gene/cell therapies), ActoBio (microbe-based biopharmaceuticals), Exemplar (MiniSwine research models), and Trans Ova/Progentus (reproductive technologies)[50][51][52][53] - The company completed the sale of most bioengineering assets in January 2020 and deconsolidated AquaBounty in April 2019, reclassifying these as discontinued operations to focus on healthcare[55][56] 2. Summary of Significant Accounting Policies This section outlines the significant accounting policies used in preparing the condensed consolidated financial statements, including the basis of presentation, liquidity management, risks and uncertainties (notably COVID-19 impacts), equity method investments, variable interest entities, accounts receivable, segment information, use of estimates, and recently adopted and issued accounting pronouncements - The financial statements are prepared under U.S. GAAP, with certain annual disclosures condensed or omitted[58] - Management expects operating losses and negative cash flows to continue, requiring additional capital to fund operations and achieve profitability[60] - COVID-19 has caused clinical trial delays (e.g., AG019, PRGN-3005) and led to the suspension of MBP Titan's operations, with the full impact on future financial performance currently unquantifiable[62][63][65] 3. Discontinued Operations Precigen completed the sale of a majority of its bioengineering assets (TS Biotechnology Sale) and its equity interest in EnviroFlight (EnviroFlight Sale) in January 2020. These transactions represent a strategic shift to focus on healthcare, and the related assets, liabilities, and operations are reclassified as discontinued operations for all periods presented - On January 31, 2020, Precigen sold most of its bioengineering assets to TS Biotechnology for $53,000 thousand and contingent payment rights[83] - On January 2, 2020, the company sold its equity interest in EnviroFlight to Darling Ingredients, Inc. for $12,200 thousand[84] - These sales represent a strategic shift towards becoming a primarily healthcare company[85] Loss from Discontinued Operations (Amounts in thousands): | Item | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Revenues | $1,294 | $8,644 | | Operating Income (Loss) | $398 | $(18,503) | | Gain on sale of discontinued operations | $672 | $0 | | Loss on release of cumulative foreign currency translation adjustment | $(26,957) | $0 | | Loss from discontinued operations | $(26,056) | $(20,442) | 4. Investments in Joint Ventures Precigen holds equity method investments in joint ventures, Intrexon Energy Partners (IEP) and Intrexon Energy Partners II (IEPII), both focused on methane bioconversion technology. The company has remaining capital contribution commitments of $4,225 thousand for IEP and $10,000 thousand for IEPII as of September 30, 2020 - Precigen has a 50% membership interest in Intrexon Energy Partners (IEP), focused on methane bioconversion for fuels and lubricants[102] - Precigen has a 50% membership interest in Intrexon Energy Partners II (IEPII), focused on methane bioconversion for 1,4-butanediol[104] Remaining Capital Contribution Commitments (Amounts in thousands): | Joint Venture | Remaining Commitment (Sep 30, 2020) | | :--- | :--- | | Intrexon Energy Partners, LLC | $4,225 | | Intrexon Energy Partners II, LLC | $10,000 | 5. Collaboration and Licensing Revenue Collaboration and licensing revenues increased by $2.9 million (128%) for the three months and $5.5 million (38%) for the nine months ended September 30, 2020, primarily due to accelerated recognition of deferred revenue from the mutual termination of collaborations with Oragenics and the termination/modification of agreements with Castle Creek Collaboration and Licensing Revenues (Amounts in thousands): | Counterparty | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Oragenics, Inc. | $2,823 | $231 | $3,053 | $613 | | Castle Creek Biosciences, Inc. | $2,394 | $402 | $16,967 | $3,247 | | Total | $5,223 | $2,296 | $20,259 | $14,717 | - In July 2020, the ECC with Oragenics was terminated, leading to the recognition of $2,823 thousand in deferred revenue[113] - In March 2020, the 2012 Castle Creek ECC was terminated/modified, and in February 2020, the 2015 Castle Creek ECC was terminated, resulting in significant deferred revenue recognition[114][115] Deferred Revenue (Amounts in thousands): | Item | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Collaboration and licensing agreements | $30,964 | $50,593 | | Total Deferred Revenue | $34,159 | $53,833 | 6. Short-term Investments The company's short-term investments, classified as available-for-sale, significantly increased from $9,260 thousand at December 31, 2019, to $85,358 thousand at September 30, 2020, primarily in U.S. government debt securities. All investments were due within one year and none were in an unrealized loss position as of September 30, 2020 Available-for-Sale Investments (Amounts in thousands): | Investment Type | Sep 30, 2020 Fair Value | Dec 31, 2019 Fair Value | | :--- | :--- | :--- | | U.S. government debt securities | $85,094 | $8,996 | | Certificates of deposit | $264 | $264 | | Total | $85,358 | $9,260 | - All available-for-sale investments were due within one year based on contractual maturities as of September 30, 2020[120] 7. Fair Value Measurements The company measures certain financial assets and liabilities at fair value, primarily short-term debt investments (Level 2) and convertible notes (Level 2). The fair value of convertible notes was $106,000 thousand as of September 30, 2020, significantly lower than their amortized cost of $165,367 thousand. A contingent consideration liability of $585 thousand was reduced to $0 during the nine months ended September 30, 2020, as the payment period expired Fair Value of Financial Instruments (Amounts in thousands): | Item | Sep 30, 2020 Fair Value | Dec 31, 2019 Fair Value | Fair Value Hierarchy | | :--- | :--- | :--- | :--- | | U.S. government debt securities | $85,094 | $8,996 | Level 2 | | Convertible Notes | ~$106,000 | ~$126,000 | Level 2 | - The contingent consideration liability, which was $585 thousand at December 31, 2019, was reduced to $0 by September 30, 2020, as the potential payment period expired[125] 8. Inventory Inventory decreased from $16,097 thousand at December 31, 2019, to $10,348 thousand at September 30, 2020, primarily driven by reductions in livestock and feed Inventory Composition (Amounts in thousands): | Item | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Supplies, embryos and other production materials | $2,339 | $2,282 | | Work in process | $2,647 | $3,702 | | Livestock | $3,310 | $7,553 | | Feed | $2,052 | $2,560 | | Total inventory | $10,348 | $16,097 | 9. Property, Plant and Equipment, Net Net property, plant, and equipment decreased from $60,969 thousand at December 31, 2019, to $44,685 thousand at September 30, 2020. This reduction was primarily due to impairment losses of $9,914 thousand related to MBP Titan's operations suspension and $920 thousand for right-of-use assets at leased locations during the nine months ended September 30, 2020 Property, Plant and Equipment, Net (Amounts in thousands): | Item | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Property, Plant and Equipment, Net | $44,685 | $60,969 | - Impairment losses of $9,914 thousand were recorded for property, plant, and equipment related to the suspension of MBP Titan's operations[128] - An additional $920 thousand in impairment losses was recorded for right-of-use assets at leased locations[129] 10. Goodwill and Intangible Assets, Net Goodwill decreased from $63,754 thousand at December 31, 2019, to $54,237 thousand at September 30, 2020, primarily due to a $9,635 thousand impairment charge related to the suspension of MBP Titan's operations. Intangible assets, net, also saw a slight decrease Goodwill and Intangible Assets, Net (Amounts in thousands): | Item | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Goodwill | $54,237 | $63,754 | | Intangible assets, net | $65,018 | $68,346 | - A goodwill impairment of $9,635 thousand was recorded due to the suspension of MBP Titan's operations[132] - Cumulative impairment losses for goodwill reached $53,278 thousand as of September 30, 2020[131] 11. Lines of Credit and Long-Term Debt Long-term debt, net of current portion, increased from $186,321 thousand at December 31, 2019, to $193,801 thousand at September 30, 2020. This includes $200,000 thousand in principal for Convertible Notes due 2023 with an effective interest rate of 11.02%, and a $25,000 thousand convertible note (Merck Note) due June 2021 Long-Term Debt (Amounts in thousands): | Item | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Convertible debt | $190,367 | $213,771 | | Notes payable | $3,762 | $4,089 | | Other | $93 | $131 | | Total Long-term debt | $194,222 | $217,991 | | Less current portion | $(421) | $(31,670) | | Long-term debt, less current portion | $193,801 | $186,321 | - The Convertible Notes have an outstanding principal of $200,000 thousand and an effective interest rate of 11.02%[138][142] - The Merck Note, a $25,000 thousand convertible note, automatically converts to Precigen common stock in December 2020[145] 12. Income Taxes The company reported U.S. taxable losses of $26,900 thousand and $133,900 thousand for the three and nine months ended September 30, 2020, respectively. It has significant operating loss carryforwards ($702,700 thousand) and capital loss carryforwards ($199,700 thousand), but these are largely offset by a valuation allowance due to a history of net losses Income Tax Benefit from Continuing Operations (Amounts in thousands): | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Current foreign income tax expense | $18 | $10 | $74 | $34 | | Deferred income tax benefit | $(68) | $(13) | $(204) | $(59) | | Total income tax benefit | $(50) | $(3) | $(130) | $(25) | - The company has U.S. federal operating loss carryforwards of approximately $702,700 thousand and capital loss carryforwards of approximately $199,700 thousand[152] - Net deferred tax assets are largely offset by a valuation allowance due to the company's history of net losses[151] 13. Shareholders' Equity During the nine months ended September 30, 2020, Precigen issued 5,972,696 shares of common stock in a private placement for $35,000 thousand and 6,293,402 shares upon conversion of long-term debt for $31,827 thousand. Accumulated other comprehensive income (loss) shifted from a loss of $27,468 thousand to a gain of $1,362 thousand, primarily due to the release of cumulative foreign currency translation losses - 5,972,696 shares of common stock were issued in a private placement for $35,000 thousand on January 31, 2020[153] - 6,293,402 shares were issued upon conversion of long-term debt, valued at $31,827 thousand[35] Accumulated Other Comprehensive Income (Loss) (Amounts in thousands): | Item | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Unrealized gain on investments | $93 | $7 | | Income (loss) on foreign currency translation adjustments | $1,269 | $(27,475) | | Total | $1,362 | $(27,468) | 14. Share-Based Payments Total stock-based compensation expense for continuing operations was $4,600 thousand for the three months and $13,869 thousand for the nine months ended September 30, 2020. The company has multiple equity incentive plans, with 11,379,605 stock options and 1,813,043 RSUs outstanding as of September 30, 2020 Stock-Based Compensation Expense (Amounts in thousands): | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Stock-Based Compensation Expense | $4,600 | $5,423 | $13,869 | $14,538 | Outstanding Equity Awards (Sep 30, 2020): | Award Type | Number Outstanding | Weighted Average Exercise Price / Grant Date Fair Value | Weighted Average Remaining Contractual Term (Years) | | :--- | :--- | :--- | :--- | | Stock Options | 11,379,605 | $15.77 | 7.36 | | Restricted Stock Units | 1,813,043 | $5.96 | 0.65 | - A new compensation arrangement for the Executive Chairman was approved in September 2020, including an annual retainer, stock options, and RSUs[165] 15. Operating Leases The company leases facilities and equipment under operating leases, with total lease costs of $2,757 thousand for the three months and $8,162 thousand for the nine months ended September 30, 2020. The weighted average remaining lease term is 4.61 years, and the weighted average discount rate is 10.96% Operating Lease Costs (Amounts in thousands): | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Operating lease costs | $1,803 | $1,821 | $5,319 | $5,439 | | Short-term lease costs | $480 | $530 | $1,332 | $1,544 | | Variable lease costs | $474 | $619 | $1,511 | $1,641 | | Total Lease Costs | $2,757 | $2,970 | $8,162 | $8,624 | Operating Lease Metrics (Sep 30, 2020): | Metric | Value | | :--- | :--- | | Weighted average remaining lease term | 4.61 years | | Weighted average discount rate | 10.96% | 16. Commitments and Contingencies Precigen is involved in ongoing legal proceedings, including a patent infringement suit with XY, LLC related to Trans Ova's semen-sorting products, which has seen recent court orders reducing Trans Ova's royalty obligations. The company also settled an SEC investigation regarding its methane bioconversion platform for $2,500 thousand and faces shareholder class action lawsuits and an arbitration notice from Harvest - Trans Ova is involved in a patent infringement suit with XY, LLC, where a May 2020 court order substantially reduced Trans Ova's royalty obligation on standard sorted semen products, terminating it as of December 4, 2019[169][173] - The company reached a final settlement with the SEC in September 2020 regarding its methane bioconversion platform disclosures, agreeing to a cease and desist order and a $2,500 thousand civil money penalty[177] - Three shareholder class action lawsuits were filed in October 2020, tracking the SEC allegations, which the company intends to vigorously defend[178] 17. Related Party Transactions Precigen has various related party transactions, primarily with Third Security and its affiliates, including compensation arrangements for the Executive Chairman, sublease income, and the TS Biotechnology Sale. Collaborations with entities like Oragenics and Castle Creek were also considered related parties until their termination or acquisition - The Executive Chairman is also the Senior Managing Director and CEO of Third Security, which previously provided services to Precigen for a fee paid in common stock[182] - The TS Biotechnology Sale in January 2020 involved an affiliate of Third Security[185] - Collaborations with Oragenics and Castle Creek were with related parties until their respective terminations or acquisitions in 2020 and 2019[186] 18. Net Loss per Share The basic and diluted net loss per share attributable to Precigen decreased to $(0.18) for the three months and $(0.79) for the nine months ended September 30, 2020, compared to $(0.35) and $(1.00) for the respective prior-year periods. Potentially dilutive securities, including convertible debt, options, RSUs, and warrants, were anti-dilutive and excluded from the calculation Net Loss per Share Attributable to Precigen: | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net loss per share, basic and diluted | $(0.18) | $(0.35) | $(0.79) | $(1.00) | Potentially Dilutive Securities (Anti-Dilutive): | Security Type | Sep 30, 2020 | Sep 30, 2019 | | :--- | :--- | :--- | | Convertible debt | 17,843,715 | 21,055,805 | | Options | 11,379,605 | 9,530,483 | | Restricted stock units | 1,813,043 | 2,108,509 | | Warrants | 133,264 | 133,264 | | Total | 31,169,627 | 32,828,061 | 19. Segments Precigen's reportable segments for the nine months ended September 30, 2020, include PGEN Therapeutics, ActoBio, MBP Titan, Trans Ova, and the Human Biotherapeutics division. Segment performance is assessed using Segment Adjusted EBITDA, which excludes non-cash items and certain other expenses - Reportable segments include PGEN Therapeutics, ActoBio, MBP Titan, Trans Ova, and the Human Biotherapeutics division[191] - Segment Adjusted EBITDA is the primary measure of segment performance, excluding noncash revenues/expenses, interest, taxes, depreciation, amortization, stock-based compensation, impairment losses, equity in net loss of affiliates, and deferred revenue recognition[189] Segment Adjusted EBITDA (Amounts in thousands): | Segment | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | PGEN Therapeutics | $(6,739) | $(5,953) | $(19,356) | $(20,789) | | ActoBio | $(1,602) | $(4,634) | $(4,727) | $(11,196) | | MBP Titan | $(1,765) | $(9,024) | $(15,728) | $(26,238) | | Trans Ova | $(1,606) | $(5,560) | $3,723 | $(2,854) | | Human Biotherapeutics | $(420) | $(142) | $(2,253) | $(719) | | All Other | $1,654 | $(1,345) | $2,783 | $(5,062) | | Unallocated corporate costs | $10,412 | $13,028 | $27,938 | $42,476 | 20. Subsequent Events In October 2020, Ares Trading voluntarily converted the entire $25,000 thousand outstanding principal of the Merck Note into 6,758,400 shares of Precigen common stock - In October 2020, the $25,000 thousand Merck Note was converted into 6,758,400 shares of Precigen common stock[196] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, emphasizing its strategic shift towards gene and cell therapies, the impact of COVID-19, and the financial performance of its healthcare and non-healthcare segments - The company is a discovery and clinical-stage biopharmaceutical company focused on gene and cell therapies for immuno-oncology, autoimmune disorders, and infectious diseases[199] - The discussion should be read in conjunction with the unaudited financial information and notes in this Quarterly Report and the Annual Report on Form 10-K for 2019[197] Overview Precigen is a dedicated discovery and clinical-stage biopharmaceutical company leveraging proprietary technology platforms (UltraCAR-T, ActoBiotics, AdenoVerse Immunotherapy, UltraVector) to develop precision gene and cell therapies for urgent and intractable diseases in immuno-oncology, autoimmune disorders, and infectious diseases. The company is actively advancing lead clinical programs and has a robust preclinical pipeline - Precigen is a biopharmaceutical company focused on gene and cell therapies for immuno-oncology, autoimmune disorders, and infectious diseases[199] - The company utilizes proprietary technology platforms including UltraCAR-T, ActoBiotics, and AdenoVerse Immunotherapy to develop precision medicine[200] - Lead clinical programs include PRGN-3005, PRGN-3006 (UltraCAR-T), PRGN-2009 (AdenoVerse Immunotherapy), and INXN-4001 (UltraVector)[201] Our Healthcare Subsidiaries Precigen's healthcare business is operated by PGEN Therapeutics (gene/cell therapies), ActoBio (microbe-based biopharmaceuticals), Exemplar (MiniSwine research models), and Triple-Gene (cardiovascular gene therapies). These subsidiaries are advancing various clinical and preclinical programs, including UltraCAR-T, AdenoVerse Immunotherapy, and ActoBiotics platforms - Healthcare business is operated by PGEN Therapeutics, ActoBio, Exemplar, and Triple-Gene[202] - PGEN Therapeutics is developing therapies based on UltraCAR-T and AdenoVerse Immunotherapy platforms, with lead programs PRGN-3005, PRGN-3006, and PRGN-2009 in clinical trials[203][204][207] - ActoBio is pioneering microbe-based biopharmaceuticals (ActoBiotics), with AG019 in a Phase 1b/2a clinical trial for type 1 diabetes[209][210] - Triple-Gene's INXN-4001, a non-viral triple-effector plasmid DNA, is in a Phase 1 clinical trial for heart failure[211][212] - Exemplar develops MiniSwine Yucatan miniature pig research models for studying human diseases and regenerative medicine[213] - Partnered programs include D-Fi and FCX-013 with Castle Creek Biosciences for skin and connective tissue diseases, and previously AG013 with Oragenics for oral mucositis (now terminated)[214][215] Our Non-Healthcare Businesses Precigen also operates non-healthcare businesses, including Trans Ova Genetics, L.C., a provider of bovine reproductive technologies, and MBP Titan LLC, which housed the Methane Bioconversion Platform. MBP Titan's operations were suspended in Q2 2020 due to market uncertainty and the energy sector's state, leading to impairment charges - Trans Ova Genetics, L.C. is an internationally recognized provider of bovine reproductive technologies, including embryo transfer, IVF, sexed-semen, genetic preservation, and cloning[216] - MBP Titan LLC, comprising the Methane Bioconversion Platform, suspended operations in Q2 2020 due to market uncertainty from COVID-19 and the energy sector[217][218] - Noncash impairment charges of $22.0 million were recorded for MBP Titan related to goodwill, property, and equipment, and right-of-use assets[218] COVID-19 Impact The COVID-19 pandemic has extensively impacted global health and economic environments, causing delays in Precigen's clinical trials (AG019, PRGN-3005) and leading to the suspension of MBP Titan's operations. While Trans Ova and Exemplar have not seen significant impacts yet, future disruptions are uncertain and could materially affect the company's business, results of operations, and financial position - COVID-19 caused temporary suspensions in clinical trials for AG019 (ActoBio) and PRGN-3005 (PGEN Therapeutics), which have since resumed[220] - MBP Titan's operations were suspended due to market uncertainty driven by the COVID-19 pandemic and the energy sector[221] - The full impact of COVID-19 on ongoing business, results of operations, and financial performance for 2020 and beyond cannot be reliably estimated and could be materially adverse[222] TS Biotechnology Sale In January 2020, Precigen sold a majority of its bioengineering assets (TS Biotechnology Sale) and its interest in EnviroFlight to focus on the healthcare industry. These transactions are presented as discontinued operations, and the company may incur future impairment charges as it continues to streamline its business - In January 2020, Precigen sold bioengineering assets (TS Biotechnology Sale) and its interest in EnviroFlight to enhance its focus on the healthcare industry[223][224] - The divested assets and operations are reclassified and presented as discontinued operations for all periods[225] - Future impairment indicators or charges could arise from ongoing efforts to focus the business and generate additional capital[226] Segments Precigen's reportable segments include PGEN Therapeutics, ActoBio, MBP Titan, Trans Ova, and the Human Biotherapeutics division. Corporate expenses are unallocated and managed at a consolidated level, and Segment Adjusted EBITDA is used as the primary measure of segment performance - Reportable segments are PGEN Therapeutics, ActoBio, MBP Titan, Trans Ova, and the Human Biotherapeutics division[227] - Corporate expenses are not allocated to segments and include general and administrative functions[228] - Segment Adjusted EBITDA is the primary metric for assessing segment operating performance and allocating resources[228] Financial overview Precigen has incurred significant losses since its inception and expects to continue doing so, with long-term profitability dependent on raising additional capital, regulatory approvals, successful commercialization, and revenue generation from its healthcare focus. The COVID-19 pandemic introduces further uncertainty to its financial outlook - The company has incurred significant losses since inception and expects continued losses, with an accumulated deficit of $1.8 billion as of September 30, 2020[229][292] - Long-term success depends on raising additional capital, obtaining regulatory approval, successful commercialization, and generating revenue from product candidates[60] - The COVID-19 pandemic's full impact on business, operations, and financial results cannot be reliably estimated and could be significantly adverse[229] Sources of revenue Historically, revenue was derived from collaboration and licensing agreements, product sales (Trans Ova, Exemplar), and service revenues. With a shift to healthcare, future revenues will depend on advancing proprietary programs, market commercialization, and maintaining/improving existing product/service offerings, while collaboration revenues are expected to decrease in the near term - Collaboration and licensing revenues historically came from technology access fees, R&D reimbursements, milestone payments, and royalties[230] - Product and service revenues are primarily generated by Trans Ova (bovine reproductive technologies) and Exemplar (MiniSwine models)[234] - Future revenues will depend on advancing proprietary healthcare programs and commercialization, with collaboration revenues expected to decrease as existing ECCs are fulfilled or terminated[235] Cost of products and services Cost of products and services primarily includes labor, drugs, supplies, livestock, feed, and facility charges. Fluctuations in livestock and feed prices have not significantly impacted operating margins, and no derivative financial instruments are used for price risk mitigation - Costs include labor, drugs, supplies, livestock, feed, and facility charges[236] - Fluctuations in livestock and feed prices have not significantly impacted operating margins[236] Research and development expenses Research and development expenses decreased by $13.5 million (53%) for the three months and $35.6 million (44%) for the nine months ended September 30, 2020, primarily due to the suspension of MBP Titan's operations and deprioritization of certain ActoBio programs. These expenses are expected to increase in the future as proprietary healthcare programs advance into preclinical and clinical stages Research and Development Expenses (Amounts in thousands): | Period | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30 | $12,154 | $25,667 | $(13,513) | | 9 Months Ended Sep 30 | $45,253 | $80,844 | $(35,591) | - Decrease driven by suspension of MBP Titan's operations and deprioritization of certain ActoBio programs[252][273] - Expected to increase as proprietary programs advance into preclinical and clinical stages, requiring additional personnel and resources[238] Selling, general and administrative expenses Selling, general and administrative (SG&A) expenses were comparable for the three months ended September 30, 2020, but decreased by $8.4 million (12%) for the nine-month period. This was due to reduced headcount and professional fees from a streamlined organization, partially offset by increased legal fees related to litigation and SEC settlement Selling, General and Administrative Expenses (Amounts in thousands): | Period | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30 | $22,300 | $22,187 | $113 | | 9 Months Ended Sep 30 | $64,057 | $72,486 | $(8,429) | - Nine-month decrease driven by reduced corporate headcount and professional fees from a streamlined organization[274] - Partially offset by increased legal fees associated with litigation matters, including the SEC settlement[253][276] Other income (expense), net Total other expense, net, increased by $5.5 million (91%) for the nine months ended September 30, 2020, primarily due to the absence of unrealized appreciation on equity securities (which were liquidated by early 2020) and lower interest income from short-term investments. Interest expense is expected to increase due to convertible debt amortization Total Other Expense, Net (Amounts in thousands): | Period | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30 | $(4,057) | $(3,941) | $(116) | | 9 Months Ended Sep 30 | $(11,660) | $(6,115) | $(5,545) | - Increase in other expense for the nine-month period due to the absence of $3.1 million unrealized appreciation on equity securities in 2019 (liquidated in 2020) and lower interest income[278] - Interest expense is expected to increase in future periods due to the noncash amortization of the long-term debt discount and debt issuance costs related to convertible notes[243] Equity in net income (loss) of affiliates Equity in net loss of affiliates decreased by $818 thousand (42.1%) for the nine months ended September 30, 2020, compared to the prior year. This represents Precigen's pro-rata share of operating results from its equity method investments in joint ventures and start-up entities Equity in Net Loss of Affiliates (Amounts in thousands): | Period | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30 | $(523) | $(479) | $(44) | | 9 Months Ended Sep 30 | $(1,125) | $(1,943) | $818 | - The company accounts for investments in joint ventures and start-up entities using the equity method[244] Segment performance Segment Adjusted EBITDA improved for most segments for the nine months ended September 30, 2020, compared to 2019, particularly for ActoBio, MBP Titan, and Trans Ova, reflecting cost reductions, operational efficiencies, and revenue increases. PGEN Therapeutics and Human Biotherapeutics saw declines due to increased clinical trial costs and one-time severance Segment Adjusted EBITDA (Amounts in thousands): | Segment | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | Change | | :--- | :--- | :--- | :--- | | PGEN Therapeutics | $(19,356) | $(20,789) | $1,433 | | ActoBio | $(4,727) | $(11,196) | $6,469 | | MBP Titan | $(15,728) | $(26,238) | $10,510 | | Trans Ova | $3,723 | $(2,854) | $6,577 | | Human Biotherapeutics | $(2,253) | $(719) | $(1,534) | | All Other | $2,783 | $(5,062) | $7,845 | | Unallocated corporate costs | $27,938 | $42,476 | $(14,538) | - ActoBio's Segment Adjusted EBITDA improved due to fewer costs with contract research organizations and delayed AG019 trial costs[285] - MBP Titan's Segment Adjusted EBITDA improved due to the suspension of its operations[286] - Trans Ova's Segment Adjusted EBITDA improved due to operational efficiencies, reduced costs, and increased procedures[287] Results of operations This section provides a detailed comparison of the company's results of operations for the three and nine months ended September 30, 2020, versus the corresponding periods in 2019, highlighting changes in revenues, operating expenses, and segment performance Comparison of the three months ended September 30, 2020 and the three months ended September 30, 2019 For the three months ended September 30, 2020, total revenues increased by 28.9% to $23.6 million, while total operating expenses decreased by 22.8% to $48.6 million, leading to a significant reduction in operating loss and net loss compared to the prior year Key Financial Highlights (3 Months Ended Sep 30, Amounts in thousands): | Item | 2020 | 2019 | Dollar Change | Percent Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $23,583 | $18,299 | $5,284 | 28.9% | | Total Operating Expenses | $48,561 | $62,936 | $(14,375) | (22.8)% | | Operating Loss | $(24,978) | $(44,637) | $19,659 | (44.0)% | | Net Loss attributable to Precigen | $(29,508) | $(53,634) | $24,126 | (45.0)% | - Collaboration and licensing revenues increased by 128% due to accelerated recognition of deferred revenue from terminated collaborations with Oragenics and Castle Creek[249] - Research and development expenses decreased by 52.6% ($13.5 million) due to the suspension of MBP Titan's operations and deprioritization of ActoBio programs[252] Comparison of the nine months ended September 30, 2020 and the nine months ended September 30, 2019 For the nine months ended September 30, 2020, total revenues increased by 13.7% to $83.8 million, while total operating expenses decreased by 13.0% to $174.0 million. This resulted in a reduced operating loss and net loss, despite significant impairment charges related to MBP Titan and increased other expenses Key Financial Highlights (9 Months Ended Sep 30, Amounts in thousands): | Item | 2020 | 2019 | Dollar Change | Percent Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $83,845 | $73,720 | $10,125 | 13.7% | | Total Operating Expenses | $173,994 | $199,946 | $(25,952) | (13.0)% | | Operating Loss | $(90,149) | $(126,226) | $36,077 | (28.6)% | | Net Loss attributable to Precigen | $(128,860) | $(153,109) | $24,249 | (15.8)% | - Collaboration and licensing revenues increased by 37.7% due to accelerated recognition of deferred revenue from terminated collaborations with Castle Creek and Oragenics[270] - Research and development expenses decreased by 44.0% ($35.6 million) due to the suspension of MBP Titan's operations and deprioritization of ActoBio programs[273] - Impairment of goodwill and other noncurrent assets increased by $22.3 million, primarily due to $22.0 million in charges related to MBP Titan's operations suspension[277] Liquidity and capital resources Precigen had $27.7 million in cash and cash equivalents and $85.4 million in short-term investments as of September 30, 2020. The company expects to fund future operations through equity offerings, debt financings, strategic alliances, asset sales, and licensing, as it anticipates continued operating losses and negative cash flows. The COVID-19 pandemic may impact future access to capital Liquid Assets (Amounts in thousands): | Item | Sep 30, 2020 | | :--- | :--- | | Cash and cash equivalents | $27,740 | | Short-term investments | $85,358 | | Total | $113,098 | - Net cash used in operating activities decreased by $43.2 million for the nine months ended September 30, 2020, compared to 2019, due to reduced funding for divested businesses and streamlined operations[294][298] - Future capital requirements depend on R&D progress, clinical trial timing, regulatory approvals, strategic transactions, and the impact of the COVID-19 pandemic[302][303] Contractual Obligations and Commitments (Amounts in thousands, as of Sep 30, 2020): | Obligation | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $32,144 | $7,116 | $13,386 | $10,540 | $1,102 | | Convertible debt | $225,000 | $25,000 | $200,000 | $0 | $0 | | Cash interest payable on convertible debt | $21,000 | $7,000 | $14,000 | $0 | $0 | | Long-term debt, excluding convertible debt | $3,855 | $421 | $696 | $753 | $1,985 | | Total | $281,999 | $39,537 | $228,082 | $11,293 | $3,087 | Critical accounting policies and estimates The company's financial statements rely on estimates and assumptions that affect reported asset/liability amounts and disclosures. Management evaluates these estimates continually, and there have been no material changes to critical accounting policies from those described in the 2019 Annual Report - Financial statements require management to make estimates and assumptions affecting reported amounts of assets, liabilities, revenues, and expenses[312] - No material changes to critical accounting policies from the 2019 Annual Report[313] Recent accounting pronouncements This section refers to Note 2 of the Condensed Consolidated Financial Statements for information on recently adopted and issued accounting pronouncements and their impact on the financial statements - Refer to Note 2 for details on recently adopted and issued accounting pronouncements[314] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item discusses the company's exposure to market risks, specifically interest rate risk and foreign currency exchange risk. The company holds $113.1 million in cash, cash equivalents, and short-term investments, primarily in U.S. government debt securities, and does not hedge foreign currency risk - The company is exposed to interest rate risk and foreign currency exchange risk[315] Cash, Cash Equivalents, and Short-term Investments (Amounts in millions): | Date | Amount | | :--- | :--- | | Sep 30, 2020 | $113.1 | | Dec 31, 2019 | $75.1 | - A hypothetical 100 basis point increase in interest rates would not materially affect the fair value of interest-sensitive financial instruments[317] - The company does not hedge its foreign currency exchange rate risk, and a hypothetical 10% change in rates would not materially impact financial statements[318] Item 4. Controls and Procedures As of September 30, 2020, the CEO and CFO concluded that the company's disclosure controls and procedures were effective. There have been no material changes to internal control over financial reporting during the quarter, despite certain employees working remotely due to the COVID-19 pandemic - CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2020[319] - No material changes to internal control over financial reporting during the three months ended September 30, 2020, despite remote work due to COVID-19[320] PART II - OTHER INFORMATION This part contains other required information for the Form 10-Q, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company is involved in various legal matters, including governmental investigations and litigation, which are subject to uncertainties. As of September 30, 2020, management does not believe these matters will have a material adverse effect on the company's business, financial condition, results of operations, or cash flows - The company is involved in litigation and governmental investigations[323] - Management does not believe current legal matters will have a material adverse effect on the company's business or financial condition[323] - Further details on ongoing legal matters are provided in Note 16 of the financial statements[324] Item 1A. Risk Factors This section updates the risk factors from the Annual Report, primarily focusing on the adverse impacts of the ongoing COVID-19 pandemic. Key risks include disruptions to product candidate development, clinical trial delays, operational challenges, potential loss of key personnel, and adverse effects on access to capital. The future of the MBP platform also remains uncertain - The ongoing COVID-19 pandemic could disrupt product candidate development and adversely impact the healthcare business, including clinical trial delays (e.g., AG019, PRGN-3005)[325] - COVID-19 effects may disrupt business operations, including supply chain, customer demand, and employee efficiency, potentially leading to impairments and credit losses[326][329][331] - The future of the MBP platform is uncertain, with operations suspended and $22.0 million in impairment charges incurred, and COVID-19 creates additional challenges for strategic alternatives[332] - The pandemic has created significant volatility, uncertainty, and economic disruption, which could adversely affect the company's access to capital on favorable terms[333] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[335] Item 3. Defaults on Senior Securities This item states that there were no defaults on senior securities to report for the period - No defaults on senior securities to report[336] Item 4. Mine Safety Disclosures This item states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[337] Item 5. Other Information This item states that there is no other information to report for the period - No other information to report[338] Item 6. Exhibits This item lists the exhibits filed as part of the Form 10-Q, including compensation arrangements, certifications from the CEO and CFO, and the Interactive Data File (XBRL) - Includes Executive Chairman Compensation Arrangement, CEO and CFO certifications (Sarbanes-Oxley Act), and Interactive Data File (XBRL)[339] Signatures This section contains the required signatures for the Form 10-Q, confirming its submission by Precigen, Inc. and signed by the Chief Financial Officer - The report is signed by Rick L. Sterling, Chief Financial Officer (Principal Financial and Accounting Officer) of Precigen, Inc[343]