SEC Filing - Precigen

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pgen-20200930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36042

PRECIGEN, INC.

(Exact name of registrant as specified in its charter)

Virginia

26-0084895

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

20374 Seneca Meadows Parkway

Germantown,

Maryland

20876

(Address of principal executive offices)

(Zip Code)

(301) 556-9900

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

PGEN

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 31, 2020, 185,462,551 shares of common stock, no par value per share, were issued and outstanding.

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PRECIGEN, INC.

FORM 10-Q

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Item No.		Page
PART I - FINANCIAL INFORMATION
1.	Condensed Consolidated Financial Statements (unaudited):	5
	Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	5
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	7
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019	9
	Condensed Consolidated Statements of Shareholders' and Total Equity for the Three and Nine Months Ended September 30, 2020 and 2019	10
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	13
	Notes to the Condensed Consolidated Financial Statements	16
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45
3.	Quantitative and Qualitative Disclosures About Market Risk	63
4.	Controls and Procedures	64

PART II - OTHER INFORMATION
1.	Legal Proceedings	65
1A.	Risk Factors	65
2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
3.	Defaults on Senior Securities	67
4.	Mine Safety Disclosures	67
5.	Other Information	67
6.	Exhibits	67
	Signatures	68

Intrexon®, Trans Ova Genetics®, ActoBiotics®, Progentus®, UltraCAR-T®, RheoSwitch®, UltraVector®, RTS®, and RheoSwitch Therapeutic System® are our and/or our affiliates' registered trademarks in the United States and GenVec™, Precigen™, AdenoVerse™, ActoBio Therapeutics™, UltraPorator™, AttSite™, and Precigen Therapeutics™ are our and/or our affiliates' common law trademarks in the United States. This Quarterly Report on Form 10-Q, or Quarterly Report, and the information incorporated herein by reference contain references to trademarks, service marks, and trade names owned by us or other companies. Solely for convenience, trademarks, service marks, and trade names referred to in this Quarterly Report and the information incorporated herein, including logos, artwork, and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks, and trade names. We do not intend our use or display of other companies' trade names, service marks, or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Other trademarks, trade names, and service marks appearing in this Quarterly Report are the property of their respective owners. Unless the context requires otherwise, references in this Quarterly Report to "Precigen", "we", "us", and "our" refer to Precigen, Inc.

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Special Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report, including statements regarding our strategy; future events, including their outcome or timing; future operations; future financial position; future revenue; projected costs; prospects; plans; objectives of management; and expected market growth, are forward-looking statements. The words "aim", "anticipate", "assume", "believe", "continue", "could", "due", "estimate", "expect", "intend", "may", "plan", "positioned", "potential", "predict", "project", "seek", "should", "target", "will", "would", and the negatives of these terms or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

•our ability to successfully enter new markets or develop product candidates, including the expected timing and results of investigational studies and preclinical and clinical trials, and our research and development programs;

•the timing or likelihood of regulatory filings for any product candidates we develop and our ability to obtain and maintain regulatory approvals for such product candidates for any indication;

•our intentions and ability to successfully commercialize our product candidates;

•the rate and degree of market acceptance of any products developed by us;

•our ability to successfully execute and achieve benefits from our recent leadership transition plan and organizational restructuring;

•our efforts to hold or generate significant operating capital, including through partnering, potential asset sales of our non-healthcare assets, and operating cost reductions;

•our cash position;

•any delays or potential delays to our clinical trials as a result of the COVID-19 pandemic;

•our estimates regarding expenses, future revenue, capital requirements, and our need for additional financing;

•our strategy and overall approach to our business model, including our efforts to focus our business in the healthcare industry;

•our ability to adapt to changes in laws, regulations, and policies;

•our reliance on and the performance of third parties, including exclusive channel collaborations and joint ventures, or JVs;

•competition from existing technologies and products or new technologies and products that may emerge;

•our expectations related to the use of proceeds from our public offerings and other financing efforts;

•actual or anticipated variations in our operating results;

•market conditions in our industry;

•our ability to retain, recruit, and train key personnel, or the loss of key personnel as a result of illness or otherwise;

•our ability to successfully enter into optimal strategic relationships with our subsidiaries and operating companies that we may form in the future;

•the result of litigation proceedings or investigations that we currently face or may face in the future; and

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•the effects, duration, and severity of the ongoing COVID-19 pandemic and the actions we and others have taken or may take in response.

Forward-looking statements may also concern our expectations relating to our subsidiaries and other affiliates. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report.

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in Part II, Item 1A. "Risk Factors," that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, JVs, or investments that we may make.

You should read this Quarterly Report, the documents that we reference in this Quarterly Report, our Annual Report on Form 10-K for the year ended December 31, 2019, the other reports we have filed with the Securities and Exchange Commission, or SEC, and the documents that we have filed as exhibits to our filings with the SEC completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Precigen, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


(Amounts in thousands, except share data)	September 30, 2020		December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	27,740	$	65,793

Short-term investments	85,358		9,260

Receivables
Trade, less allowance for credit losses of $4,850 and $5,201 as of September 30, 2020 and December 31, 2019, respectively	19,063		20,650
Related parties, less allowance for credit losses of $2,312 as of September 30, 2020 and December 31, 2019	12		600

Other	285		4,978
Inventory	10,348		16,097
Prepaid expenses and other	8,310		6,444
Current assets held for sale	—		110,821
Total current assets	151,116		234,643


Property, plant and equipment, net	44,685		60,969
Intangible assets, net	65,018		68,346
Goodwill	54,237		63,754
Investments in affiliates	337		1,461
Right-of-use assets	19,296		25,228
Other assets	1,497		1,362
Total assets	$	336,186	$	455,763

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Precigen, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


(Amounts in thousands, except share data)	September 30, 2020		December 31, 2019
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable	$	4,233	$	5,917
Accrued compensation and benefits	7,567		14,091
Other accrued liabilities	9,355		12,049
Deferred revenue, including $0 and $877 from related parties as of September 30, 2020 and December 31, 2019, respectively	4,144		5,697
Lines of credit	—		1,922
Current portion of long-term debt, including $0 and $31,211 to related parties as of September 30, 2020 and December 31, 2019, respectively	421		31,670

Current portion of lease liabilities	4,584		4,182
Related party payables	357		51
Current liabilities held for sale	—		47,333
Total current liabilities	30,661		122,912
Long-term debt, net of current portion, including $25,000 to related parties as of September 30, 2020 and December 31, 2019	193,801		186,321

Deferred revenue, net of current portion, including $28,197 and $30,182 from related parties as of September 30, 2020 and December 31, 2019, respectively	30,015		48,136
Lease liabilities, net of current portion	20,323		23,849
Deferred tax liabilities	2,734		2,834
Other long-term liabilities	100		—
Total liabilities	277,634		384,052
Commitments and contingencies (Note 16)
Shareholders' equity
Common stock, no par value, 400,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 178,704,151 shares and 163,274,880 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	—		—
Additional paid-in capital	1,838,919		1,752,048
Accumulated deficit	(1,781,729)		(1,652,869)
Accumulated other comprehensive income (loss)	1,362		(27,468)
Total shareholders' equity	58,552		71,711


Total liabilities and shareholders' equity	$	336,186	$	455,763

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Precigen, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


(Amounts in thousands, except share and per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues
Collaboration and licensing revenues, including $2,823 and $1,851 from related parties during the three months ended September 30, 2020 and 2019, respectively, and $3,053 and $12,543 during the nine months ended September 30, 2020 and 2019, respectively	$	5,223	$	2,296	$	20,259	$	14,717
Product revenues	6,896		5,846		20,397		18,483
Service revenues	11,288		9,924		42,615		39,707
Other revenues	176		233		574		813
Total revenues	23,583		18,299		83,845		73,720
Operating Expenses
Cost of products	7,296		7,906		21,526		24,130
Cost of services	5,891		6,550		20,197		21,860
Research and development	12,154		25,667		45,253		80,844
Selling, general and administrative	22,300		22,187		64,057		72,486
Impairment of goodwill	—		178		9,635		178
Impairment of other noncurrent assets	920		448		13,326		448
Total operating expenses	48,561		62,936		173,994		199,946
Operating loss	(24,978)		(44,637)		(90,149)		(126,226)
Other Expense, Net
Unrealized and realized appreciation (depreciation) in fair value of equity securities and preferred stock, net	—		(3,139)		—		3,070

Interest expense	(4,646)		(4,466)		(13,830)		(13,124)
Interest and dividend income	579		883		2,025		3,268
Other income, net	10		2,781		145		671
Total other expense, net	(4,057)		(3,941)		(11,660)		(6,115)
Equity in net loss of affiliates	(523)		(479)		(1,125)		(1,943)
Loss from continuing operations before income taxes	(29,558)		(49,057)		(102,934)		(134,284)
Income tax benefit	50		3		130		25
Loss from continuing operations	(29,508)		(49,054)		(102,804)		(134,259)
Loss from discontinued operations, net of income taxes	—		(4,580)		(26,056)		(20,442)
Net loss	$	(29,508)	$	(53,634)	$	(128,860)	$	(154,701)
Net loss attributable to the noncontrolling interests	—		—		—		1,592
Net loss attributable to Precigen	$	(29,508)	$	(53,634)	$	(128,860)	$	(153,109)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Precigen, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


(Amounts in thousands, except share and per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amounts Attributable to Precigen
Net loss from continuing operations attributable to Precigen	$	(29,508)	$	(49,054)	$	(102,804)	$	(132,667)
Net loss from discontinued operations attributable to Precigen	—		(4,580)		(26,056)		(20,442)
Net loss attributable to Precigen	$	(29,508)	$	(53,634)	$	(128,860)	$	(153,109)
Net Loss per Share
Net loss from continuing operations attributable to Precigen per share, basic and diluted	$	(0.18)	$	(0.32)	$	(0.63)	$	(0.86)
Net loss from discontinued operations attributable to Precigen per share, basic and diluted	—		(0.03)		(0.16)		(0.14)
Net loss attributable to Precigen per share, basic and diluted	$	(0.18)	$	(0.35)	$	(0.79)	$	(1.00)
Weighted average shares outstanding, basic and diluted	165,527,024		154,596,257		163,318,375		153,770,785

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Precigen, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in thousands)	2020		2019		2020		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	—		—		26,957		—
Comprehensive loss	(27,496)		(58,530)		(100,030)		(159,180)
Comprehensive loss attributable to the noncontrolling interests	—		—		—		1,581
Comprehensive loss attributable to Precigen	$	(27,496)	$	(58,530)	$	(100,030)	$	(157,599)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Precigen, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders' and Total Equity

(Unaudited)


(Amounts in thousands, except share data)	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Balances at June 30, 2020	172,285,932	$	—	$	1,802,413	$	(650)	$	(1,752,221)	$	49,542
Stock-based compensation expense	—	—		4,600		—		—		4,600
Shares issued upon vesting of restricted stock units and for exercises of stock options	28,389	—		3		—		—		3
Shares issued for accrued compensation	75,000	—		—		—		—		—
Shares issued as payment for services	21,428	—		76		—		—		76


Shares issued upon conversion of long-term debt	6,293,402	—		31,827		—		—		31,827










Net loss	—	—		—		—		(29,508)		(29,508)

Other comprehensive income	—	—		—		2,012		—		2,012
Balances at September 30, 2020	178,704,151	$	—	$	1,838,919	$	1,362	$	(1,781,729)	$	58,552


(Amounts in thousands, except share data)	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Balances at June 30, 2019	161,917,424	$	—	$	1,737,449	$	(28,206)	$	(1,430,020)	$	279,223
Stock-based compensation expense	—	—		5,423		—		—		5,423
Shares issued upon vesting of restricted stock units and for exercises of stock options	164,844	—		6		—		—		6

Shares issued as payment for services	429,672	—		2,299		—		—		2,299











Net loss	—	—		—		—		(53,634)		(53,634)
Other comprehensive loss	—	—		—		(4,896)		—		(4,896)
Balances at September 30, 2019	162,511,940	$	—	$	1,745,177	$	(33,102)	$	(1,483,654)	$	228,421

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Precigen, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders' and Total Equity

(Unaudited)


(Amounts in thousands, except share data)	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Balances at December 31, 2019	163,274,880	$	—	$	1,752,048	$	(27,468)	$	(1,652,869)	$	71,711
Stock-based compensation expense	—	—		13,869		—		—		13,869
Shares issued upon vesting of restricted stock units and for exercises of stock options	868,857	—		69		—		—		69
Shares issued for accrued compensation	1,880,405	—		5,100		—		—		5,100
Shares issued as payment for services	413,911	—		1,006		—		—		1,006

Shares issued in private placement	5,972,696	—		35,000		—		—		35,000
Shares issued upon conversion of long-term debt	6,293,402	—		31,827		—		—		31,827










Net loss	—	—		—		—		(128,860)		(128,860)
Release of cumulative translation adjustments to loss from discontinued operations	—	—		—		26,957		—		26,957
Other comprehensive income	—	—		—		1,873		—		1,873
Balances at September 30, 2020	178,704,151	$	—	$	1,838,919	$	1,362	$	(1,781,729)	$	58,552

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Precigen, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders' and Total Equity

(Unaudited)


(Amounts in thousands, except share data)	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Precigen Shareholders' Equity		Noncontrolling Interests		Total Equity
	Shares	Amount
Balances at December 31, 2018	160,020,466	$	—	$	1,722,012	$	(28,612)	$	(1,330,545)	$	362,855	$	15,867	$	378,722
Stock-based compensation expense	—	—		14,469		—		—		14,469		69		14,538
Shares issued upon vesting of restricted stock units and for exercises of stock options and warrants	796,859	—		63		—		—		63		250		313
Shares issued for accrued compensation	150,908	—		1,102		—		—		1,102		—		1,102
Shares issued as payment for services	1,543,707	—		7,987		—		—		7,987		—		7,987
Shares and warrants issued in public offerings, net of issuance costs	—	—		—		—		—		—		6,611		6,611







Adjustments for noncontrolling interests	—	—		(456)		—		—		(456)		456		—
Deconsolidation of subsidiary	—	—		—		—		—		—		(21,672)		(21,672)

Net loss	—	—		—		—		(153,109)		(153,109)		(1,592)		(154,701)
Other comprehensive income (loss)	—	—		—		(4,490)		—		(4,490)		11		(4,479)
Balances at September 30, 2019	162,511,940	$	—	$	1,745,177	$	(33,102)	$	(1,483,654)	$	228,421	$	—	$	228,421

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Precigen, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
(Amounts in thousands)	2020		2019
Cash flows from operating activities
Net loss	$	(128,860)	$	(154,701)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	13,701		18,711
Loss on disposals of assets, net	1,606		1,875
Impairment of goodwill	9,635		178
Impairment of other noncurrent assets	13,326		448
Gain on sale of discontinued operations	(672)		—
Loss on release of cumulative foreign currency translation adjustments to loss from discontinued operations	26,957		—

Unrealized and realized (appreciation) depreciation on equity securities and preferred stock, net	106		(2,634)

Amortization of discounts on investments, net	(652)		(949)
Equity in net loss of affiliates	1,163		5,034

Stock-based compensation expense	13,869		14,538
Shares issued as payment for services	1,006		7,987

Provision for credit losses	759		787
Accretion of debt discount and amortization of deferred financing costs	7,807		6,962
Deferred income taxes	(204)		(1,448)
Other noncash items	108		3,246
Changes in operating assets and liabilities:
Receivables:
Trade	952		241
Related parties	265		1,190

Other	1,807		462
Inventory	5,411		4,775
Prepaid expenses and other	(1,777)		(4,320)
Other assets	(125)		(41)
Accounts payable	(1,556)		(4,432)
Accrued compensation and benefits	(1,605)		535
Other accrued liabilities	(3,072)		(5,651)
Deferred revenue	(20,304)		5,056

Lease liabilities	(508)		(1,087)
Related party payables	305		38
Other long-term liabilities	—		(585)
Net cash used in operating activities	(60,552)		(103,785)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Precigen, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
(Amounts in thousands)	2020		2019
Cash flows from investing activities
Purchases of investments	$	(171,360)	$	(55,073)
Sales and maturities of investments	96,000		130,496



Proceeds from sales of equity securities	—		589

Investments in affiliates	—		(3,713)
Decrease in cash from deconsolidation of subsidiary	—		(7,244)
Return of investment in affiliate	—		125

Purchases of property, plant and equipment	(6,058)		(33,199)
Proceeds from sale of assets	1,831		361
Proceeds from sale of discontinued operations, net of cash sold	64,240		—

Proceeds from repayment of notes receivable	2,942		—
Net cash provided by (used in) investing activities	(12,405)