What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 97 added, 71 removed, 301 unchanged (36% of the section changed)

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The Phase 2 clinical trial is ongoing.

We recently announced that the FDA has agreed that the ongoing Phase 1/2 study of PRGN-2012 will serve as pivotal study for the purpose of filing an accelerated approval request for licensure.

PRGN-2012 has been granted Breakthrough Therapy Designation for the treatment of RRP by the FDA.

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PRGN-3005 is currently being evaluated in a Phase 1/1b clinical trial for the treatment of advanced, recurrent platinum-resistant ovarian , fallopian tube, or primary peritoneal cancer.

We have completed enrollment in the Phase 1 dose escalation cohorts of the intraperitoneal (IP) and intravenous (IV) arms without lymphodepletion as well as in the lymphodepletion cohort in the IV arm and initiated Phase 1b expansion clinical trial.

The Phase 1b dose expansion trial is ongoing where PRGN-3006 is being evaluated following lymphodepletion and IV administration.

PRGN-3007 is a first-in-class, investigational autologous CAR-T therapy that utilizes the next generation UltraCAR-T platform to express a CAR which targets ROR1, mbIL15, a kill switch, and a novel mechanism for the intrinsic blockade of the programmed death 1, or PD-1, gene expression.

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In addition to our clinical programs, we have a robust pipeline of preclinical programs in order to drive long-term value creation.

Our pipeline includes product candidates based on UltraCAR-T and "off-the-shelf" AdenoVerse immunotherapy therapeutic platforms.

Our pipeline includes product candidates based on UltraCAR-T and "off-the-shelf" AdenoVerse immunotherapy

therapeutic platforms.

We expect to continue development of a number of potential product candidates in our preclinical pipeline to identify product candidates for evaluation in clinical trials.

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Precigen Exemplar

Exemplar is committed to enabling the study of life-threatening human diseases through the development of MiniSwine Yucatan miniature pig research models and services, and by enabling the production of cells and organs in its genetically engineered swine for regenerative medicine applications.

Exemplar is committed to enabling the study of life-threatening human diseases through the development of Yucatan MiniSwine miniature preclinical research models and services, as well as enabling the production of cells and organs in its genetically engineered MiniSwine for regenerative medicine applications.

Historically, researchers have lacked animal models that faithfully represent human diseases.

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See also "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report for additional discussion of our discontinued operations.

As of June 30, 2023, our reportable segments were (i) Biopharmaceuticals and (ii) Exemplar.

These identified reportable segments met the quantitative thresholds to be reported separately for the six months ended June 30, 2023.

As of September 30, 2023, our reportable segments were (i) Biopharmaceuticals and (ii) Exemplar.

These identified reportable segments met the quantitative thresholds to be reported separately for the nine months ended September 30, 2023.

Prior to January 1, 2023, corporate expenses, were not allocated to the segments and were managed at a consolidated level.

Corporate expenses, include costs associated with general and administrative functions, including the Company's finance, accounting, legal, human resources, information technology, corporate communication, and investor relations functions.

Corporate expenses exclude interest expense, depreciation and amortization, gain or loss on disposals of assets, stock-based compensation expense, loss on settlement agreement, and equity in net loss of affiliates and include unrealized and realized gains and losses on the Company's securities portfolio as well as dividend income.

Corporate expenses exclude interest expense, depreciation and amortization, gain or loss on disposals of assets, stock-based compensation expense, loss on settlement agreement, and equity in net income or loss of affiliates and include unrealized and realized gains and losses on the Company's securities portfolio as well as dividend income.

Beginning in the first quarter of 2023, we began allocating certain corporate expenses to one of the reporting units within the Biopharmaceuticals reportable segment.

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We may enter into strategic transactions for individual platforms or programs in the future from which we may generate new collaboration and licensing revenues.

We continue to generate product and service revenues through our Exemplar subsidiary, and in the six months ended June 30, 2023, it produced positive Segment Adjusted EBITDA.

We continue to generate product and service revenues through our Exemplar subsidiary.

Products currently in our clinical pipeline will require regulatory approval and/or commercial scale-up before they may commence significant product sales and operating profits.

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In future periods, in connection with our focus on healthcare, our revenues will primarily depend on our ability to advance and create our own programs and the extent to which we bring products enabled by our technologies to market.

Other than for collaboration revenues recognized upon cancellation or modification of an existing collaboration or for revenues generated pursuant to future strategic transactions for any of our existing platforms or programs, we expect our collaboration revenues will continue to decrease in the near term, although if any new collaboration agreements or strategic transactions are entered into, revenue could be positively impacted .

into, revenue could be positively impacted.

Our revenues will also depend upon our ability to maintain or improve the volume and pricing of Exemplar's current product and service offerings and to develop and scale up production of new offerings from the various technologies of Exemplar.

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Our Exemplar segment's research and development activities relate to new and improved pig research models.

The following table summarizes our research and development expenses incurred by reportable segment and reconciles those expenses to research and development expenses on the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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The amount of research and development expenses may be impacted by, among other things, the number and nature of our own proprietary programs, and the number and size of programs we may support on behalf of collaboration agreements.

We expect that our research and development expenses will increase as we continue to develop our own proprietary programs, including progression of these programs into preclinical and clinical stages.

We expect that our research and development expenses will increase as we continue to develop our own proprietary programs, including

progression of these programs into preclinical and clinical stages.

We believe these increases will likely include increased costs paid to consultants and contract research organizations and increased costs related to laboratory supplies.

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Selling, general and administrative expenses

Selling, general and administrative, or SG&A, expenses consist primarily of salaries and related costs, including stock-based compensation expense, for employees in executive, operational, finance, information technology, legal, and corporate

communications functions.

Other significant SG&A expenses include rent and utilities, insurance, accounting, and legal services (including the cost of settling any claims and lawsuits), and expenses associated with obtaining and maintaining our intellectual property.

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Other income (expense), net

Other income consists of interest earned on our cash and cash equivalents and short-term and long-term investments and may

fluctuate based on amounts invested and current interest rates.

Other income consists of gain on convertible debt retirement and interest earned on our cash and cash equivalents and short-term and long-term investments, and may fluctuate based on amounts invested and current interest rates.

Other expense consists primarily of interest on our Convertible Notes, which decreased in 2023 due to retirements of our Convertible Notes.

See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 9" appearing elsewhere in this Quarterly Report for further discussion.

Equity in net loss of affiliates

Equity in net income or loss of affiliates

Equity in net income or loss of affiliates is our pro-rata share of our equity method investments' operating results, adjusted for accretion of basis difference.

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We use Segment Adjusted EBITDA as our primary measure of segment performance.

We define Segment Adjusted EBITDA as net income (loss) before (i) interest expense, (ii) income tax expense or benefit, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) loss on settlement agreements where noncash consideration is paid, (vi) adjustments for accrued bonuses paid in equity awards, (vii) gain or loss on disposals of assets, (viii) loss on impairment of goodwill and other noncurrent assets, (ix) equity in net loss of affiliates, and (x) recognition of previously deferred revenue associated with upfront and milestone payments as well as cash outflows from capital expenditures and investments in affiliates, but includes proceeds from the sale of assets in the period sold.

We define Segment Adjusted EBITDA as net income (loss) before (i) interest expense, (ii) income tax expense or benefit, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) loss on settlement agreements where noncash consideration is paid, (vi) adjustments for accrued bonuses paid in equity awards, (vii) gain or loss on disposals of assets, (viii) loss on impairment of goodwill and other noncurrent assets, (ix) equity in net income (loss) of affiliates, and (x) recognition of previously deferred revenue associated with upfront and milestone payments as well as cash outflows from capital expenditures and investments in affiliates, but includes proceeds from the sale of assets in the period sold.

See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 15" appearing elsewhere in this Quarterly Report for further discussion of Segment Adjusted EBITDA.

Results of operations

Comparison of the three months ended June 30, 2023 and the three months ended June 30, 2022

The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022, together with the changes in those items in dollars and as a percentage:

Comparison of the three months ended September 30, 2023 and the three months ended September 30, 2022

The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022, together with the changes in those items in dollars and as a percentage:

Three Months Ended

June 30, Dollar

September 30, Dollar

Change Percent

(In thousands)

Collaboration and licensing revenues $ — $ 14,561 $ (14,561) (100.0) %

Product revenues 82 342 (260) (76.0) %

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Selling, general and administrative 9,196 10,137 (941) (9.3) %

Impairment of other noncurrent assets — 638 (638) (100.0) %

Impairment of other noncurrent assets — — — N/A

Total operating expenses 22,316 24,336 (2,020) (8.3) %

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Total other income (expense), net 1,136 (942) 2,078 >200%

Equity in net income (loss) of affiliates

— 862 (862) (100.0) %

Loss from continuing operations before income taxes (19,801) (7,694) (12,107) 157.4 %

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Income from discontinued operations, net of income taxes (1) — 95,023 (95,023) (100.0) %

Net loss $ (20,319) $ (17,635) $ (2,684) 15.2 %

Net income (loss)

$ (19,795) $ 87,379 $ (107,174) (122.7) %

(1) See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report.

Revenues and gross margin

Revenues decreased $1.1 million, or 39%, from the three months ended June 30, 2022.

This decrease related to reductions in services performed at Exemplar.

Collaboration and licensing revenues

Collaboration and licensing revenues decreased $14.6 million, or 100.0%, from the three months ended September 30, 2022 due to the fact we obtained control of Intrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022.

Therefore, we recognized the remaining balance of deferred revenue associated with Intrexon Energy Partners and Intrexon Energy Partners II, less the amounts paid to acquire the membership interests of the investors.

See "Note to the Condensed Financial Statements (Unaudited) – Note 4” appearing elsewhere in this Quarterly Report for further discussion of Intrexon Energy Partners and Intrexon Energy Partners II.

Product and service revenues and gross margin

Product and service revenues decreased $0.7 million, or 34%, compared to the three months ended September 30, 2022.

This decrease is related to reductions in services performed at Exemplar.

Gross margin on product and services declined in the current period primarily as a result of the decreased revenues, with a smaller impact due to increases in salaries, benefits, and other personnel costs at Exemplar.

Research and development expenses

Research and development expenses decreased $0.1 million, or 1%, compared to the three months ended June 30, 2022.

This decrease was primarily driven by less expense incurred related to preclinical research programs for the comparable period.

Research and development expenses decreased $1.0 million, or 8%, compared to the three months ended September 30, 2022.

This decrease was primarily due to continued reprioritization of clinical product candidates.

Selling, general and administrative expenses

SG&A expenses decreased $3.4 million, or 27%, compared to the three months ended June 30, 2022.

This decrease was primarily driven by a reduction in professional fees of $2.2 million, due to decreased legal fees associated with certain litigation matters, as well as a $1.1 million reduction in salaries, benefits, and other personnel costs due to reduced head count .

SG&A expenses decreased $0.9 million, or 9%, compared to the three months ended September 30, 2022.

This decrease was primarily driven by a reduction in professional fees of $0.6 million, due to decreased legal fees associated with certain litigation matters, and $0.3 million in decreased insurance related expenses.

Total other income (expense), net

Total other income, net, increased $2.7 million compared to the three months ended June 30, 2022.

This is primarily due to reduced interest expense associated with our Convertible Notes issued July 2018 as they were retired in the second quarter of 2023, and increased interest income due to higher interest rates on our investments.

Total other income, net, increased $2.1 million compared to the three months ended September 30, 2022.

This is primarily due to $2.0 million in reduced interest expense associated with the Convertible Notes as they were fully retired in the second quarter of 2023, and $0.8 million increased interest income due to higher interest rates on investments.

This increase was offset by a $0.9 million gain recorded on the early retirement of a portion of our Convertible Notes in the third quarter of 2022 that did not occur in the third quarter of 2023.

Segment performance

The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the three months ended June 30, 2023 and 2022, for each of our reportable segments.

The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the three months ended September 30, 2023 and 2022, for each of our reportable segments.

Three Months Ended

June 30, Dollar

September 30, Dollar

Change Percent

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For a reconciliation of Segment Adjusted EBITDA to net loss from continuing operations before income taxes, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 15" appearing elsewhere in this Quarterly Report.

The following table summarizes revenues from external customers for the three months ended June 30, 2023 and 2022, for each of our reportable segments.

The following table summarizes revenues from external customers for the three months ended September 30, 2023 and 2022, for each of our reportable segments.

Three Months Ended

June 30, Dollar

September 30, Dollar

Change Percent

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Biopharmaceuticals

Segment Adjusted EBITDA increased primarily due to our reduction in Selling, general and administrative expenses within the reportable segment.

Segment Adjusted EBITDA increased primarily due to our reduction in Selling, general and administrative expenses and Research and Development expenses within the reportable segment.

Revenues for Exemplar decreased due to a decrease in services performed resulting from a lower demand from existing customers.

The decline in Segment Adjusted EBITDA was primarily due to the decreased revenues.

Comparison of the six months ended June 30, 2023 and the six months ended June 30, 2022

The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022, together with the changes in those items in dollars and as a percentage:

Six Months Ended

June 30, Dollar

Comparison of the nine months ended September 30, 2023 and the nine months ended September 30, 2022

The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022, together with the changes in those items in dollars and as a percentage:

Nine Months Ended

September 30, Dollar

Change Percent

(In thousands)

Collaboration and licensing revenues $ — $ 14,561 $ (14,561) (100.0) %

Product revenues 730 1,455 (725) (49.8) %

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Total other income (expense), net 2,560 (4,730) 7,290 154.1 %

Equity in net loss of affiliates — (1) 1 (100.0) %

Equity in net income (loss) of affiliates

— 861 (861) (100.0) %

Loss from continuing operations before income taxes (62,974) (57,798) (5,176) 9.0 %

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Income from discontinued operations, net of income taxes (1) — 108,094 (108,094) (100.0) %

Net loss $ (43,053) $ (36,886) $ (6,167) 16.7 %

Net (loss) income

$ (62,848) $ 50,493 $ (113,341) <(200)%

(1) See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report.

Revenues and gross margin

Revenues decreased $4.8 million, or 57.1%, from the six months ended June 30, 2022.

Collaboration and licensing revenues

Collaboration and licensing revenues decreased $14.6 million, or 100.0%, from the nine months ended September 30, 2022, due to the fact we obtained control of Intrexon Energy Partners and Intrexon Energy Partners II in the third quarter of 2022.

Product and services revenues and gross margin

Product and services revenues decreased $5.4 million, or 52%, from the nine months ended September 30, 2022.

This decrease primarily related to reductions in services performed at Exemplar as well as the recognition of revenue in the first quarter of 2022 related to agreements for which revenue was previously deferred that did not occur in 2023 of $1.0 million at Exemplar.

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Research and development expenses

Research and development expenses increased $0.3 million, or 1.2%, compared to the six months ended June 30, 2022.

This increase was primarily driven by a continued prioritization of clinical product candidates.

Research and development expenses decreased $0.8 million, or 2.1%, compared to the nine months ended September 30, 2022.

This decrease was primarily due to continued reprioritization of clinical product candidates.

Selling, general and administrative expenses

SG&A expenses decreased $5.4 million, or 20.5%, compared to the six months ended June 30, 2022.

This decrease was primarily driven by a reduction in professional fees of $4.2 million, due to decreased legal fees associated with certain litigation matters, as well as a $1.1 million reduction in salaries, benefits, and other personnel costs due to reduced head count.

SG&A expenses decreased $6.3 million, or 17.4%, compared to the nine months ended September 30, 2022.

This decrease was primarily driven by a reduction in professional fees of $4.8 million, due to decreased legal fees associated with certain litigation matters, as well as a $1.2 million reduction in salaries, benefits, and other personnel costs due to reduced head count, and $0.3 million in decreased insurance related expenses.

Total other income (expense), net

Total other income, net, increased $5.2 million compared to the six months ended June 30, 2022.

Total other income, net, increased $7.3 million compared to the nine months ended September 30, 2022.

This is primarily due to $5.7 million in reduced interest expense associated with the Convertible Notes as they were retired in the second quarter of 2023, and $2.1 million in increased interest income due to higher interest rates on the Company's investments.

This increase was offset by a $0.8 million reduction in the gain recorded on the early retirement of a portion of our Convertible Notes in 2023 compared to 2022.

Segment performance

The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the six months ended June 30, 2023 and 2022.

Six Months Ended

June 30, Dollar

The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the nine months ended September 30, 2023 and 2022.

Nine Months Ended

September 30, Dollar

Change Percent

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The following table summarizes revenues from external customers for the six months ended June 30, 2023 and 2022, for each of our reportable segments.

Six Months Ended

June 30, Dollar

The following table summarizes revenues from external customers for the nine months ended September 30, 2023 and 2022, for each of our reportable segments.

Nine Months Ended

September 30, Dollar

Change Percent

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Sources of liquidity

We have incurred losses from operations since our inception, and as of June 30, 2023, we had an accumulated deficit of $1.9 billion.

From our inception through June 30, 2023, we have funded our operations principally with proceeds received from private and public equity and debt offerings, cash received from our collaborators, and through product and service sales made directly to customers.

As of June 30, 2023, we had cash and cash equivalents of $16.5 million and short-term and long-term investments of $79.0 million.

We have incurred losses from operations since our inception, and as of September 30, 2023, we had an accumulated deficit of $1.9 billion.

From our inception through September 30, 2023, we have funded our operations principally with proceeds

received from private and public equity and debt offerings, cash received from our collaborators, and through product and service sales made directly to customers.

As of September 30, 2023, we had cash and cash equivalents of $10.1 million and short-term and long-term investments of $69.0 million.

Cash in excess of immediate requirements is typically invested primarily in money market funds, certificate of deposits and U.S.

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The following table sets forth the significant sources and uses of cash for the periods set forth below:

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Net cash provided by (used in):

Net cash (used in) provided by:

Operating activities $ (51,164) $ (49,649)

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Cash flows from operating activities:

During the six months ended June 30, 2023, our net loss was $43.1 million, which includes the following significant noncash expenses totaling $9.2 million:

During the nine months ended September 30, 2023, our net loss was $62.8 million, which includes the following significant noncash expenses totaling $13.2 million:

(i) $7.6 million of stock-based compensation expense, (ii) $5.1 million of depreciation and amortization expense, and (iii) $0.5 million of shares issued as payment for services.

During the six months ended June 30, 2022, our net loss was $36.9 million, which includes the following significant noncash expenses totaling $14.7 million from both continuing and discontinued operations:

During the nine months ended September 30, 2022, our net income was $50.5 million, which includes the gain on sale of discontinued operations of $94.7 million, which is presented as an adjustment to net income to net cash used in operating activities as the cash flows from the sale is presented within cash flows from investing activities;

additional significant noncash expenses totaling $19.6 million from both continuing and discontinued operations:

(i) $8.0 million of stock-based compensation expense, (ii) $9.0 million of depreciation and amortization expense, (iii) $0.9 million accretion of debt discount and amortization of deferred financing costs, (iv) $0.6 million of shares issued as payment for services, and (vi) $1.1 million of asset impairments.

Our cash outflows from operations during the six months ended June 30, 2023 were $8.3 million lower than the six months ended June 30, 2022 primarily due to decreased cash inflows provided by Trans Ova and Exemplar.

Our cash outflows from operations during the nine months ended September 30, 2023 were $1.5 million lower than the nine months ended September 30, 2022 primarily due to decreased cash inflows provided by Trans Ova and Exemplar.

Cash flows from investing activities:

During the six months ended June 30, 2023, we purchased $26.7 million of investments, net of sales and maturities, primarily using the proceeds received from the underwritten public offering discussed below under cash flows from financing activities.

During the six months ended June 30, 2022, we received proceeds of $36.0 million related to the sale and maturity of investments, partially offset by $3.3 million of purchases of property plant and equipment primarily in Trans Ova.

During the nine months ended September 30, 2023, we purchased $16.0 million of investments, net of sales and maturities, primarily using the proceeds received from the underwritten public offering discussed below under cash flows from financing activities.

During the nine months ended September 30, 2022, we received $162.3 million of proceeds from the sale of discontinued operations and $57.0 million related to the sale and maturity of investments, partially offset by $4.9 million of purchases of property plant and equipment primarily in Trans Ova.

Cash flows from financing activities:

During the six months ended June 30, 2023, we received $72.8 million proceeds from the sale of our common stock in an underwritten public offering and retired $43.1 million of our Convertible Notes using restricted cash.

During the six months ended June 30, 2022, we made payments of long-term debt of $0.3 million .

During the nine months ended September 30, 2023, we received $72.8 million of proceeds from the sale of our common stock in an underwritten public offering and retired $43.2 million of our Convertible Notes using restricted cash.

During the nine months ended September 30, 2022, we repurchased $115.7 million of our Convertible Notes using restricted cash.

Future capital requirements

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Contractual obligations and commitments

The following table summarizes our significant contractual obligations and commitments from continuing operations as of June 30, 2023 and the effects such obligations are expected to have on our liquidity and cash flows in future periods:

The following table summarizes our significant contractual obligations and commitments from continuing operations as of September 30, 2023 and the effects such obligations are expected to have on our liquidity and cash flows in future periods:

Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More Than 5 Years

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Operating leases $ 10,201 $ 1,973 $ 3,575 $ 2,491 $ 2,162

Operating leases not yet commenced

$ 706 176 471 59 —

Total $ 10,907 $ 2,149 $ 4,046 $ 2,550 $ 2,162

(1) See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Notes 9" appearing elsewhere in this Quarterly Report for further discussion of our convertible debt.

In addition to the obligations in the table above, as of June 30, 2023, we are party to license agreements with various third parties that contain future milestones and royalty payment obligations related to development milestones and/or commercial sales of products that incorporate or use their technologies.

In addition to the obligations in the table above, as of September 30, 2023, we are party to license agreements with various third parties that contain future milestones and royalty payment obligations related to development milestones and/or commercial sales of products that incorporate or use their technologies.

Because these agreements are generally subject to termination by us or are dependent on certain condition precedents within our control, no amounts are included in the tables above.

As of June 30, 2023, we also had research and development commitments with third parties totaling $19.5 million that had not yet been incurred.

As of September 30, 2023, we also had research and development commitments with third parties totaling $16.8 million that had not yet been incurred.

Off-balance sheet arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis