Precigen, Inc. Q1 FY2020 Earnings Call

Good afternoon, and welcome to the Precigen First Quarter 2020 Business Update and Financial Results Conference Call. I will now turn the call over to Steve Harasym, Head of Investor Relations. Please go ahead.

Thank you, Operator. I am pleased to be joined today by Dr. Helen Sabzevari, President and CEO of Precigen; and Tom Samuelson, Head of Financial Strategy. Please turn to Slide 2 for our forward-looking statement. During today's call, we will make various forward-looking statements. Investors are cautioned that our forward-looking statements are based on current expectations and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those indicated by our forward-looking statements. Please read the safe harbor statement contained in this presentation as well as the risk factors contained in Precigen's most recent SEC filings, for a more complete discussion of these risks and uncertainties. I will now turn the call over to Dr. Sabzevari.

Thank you, Steve. I hope that this call finds all our listeners and their families safe and healthy. Since we last spoke in March, so much has changed. We are living through a historic moment that has caused profound change from all perspectives: scientific, economic, sociologic, and psychologic. Our nation and the world are making progress in working together to overcome the challenge of COVID-19. At Precigen, the health and safety of our employees is of the utmost importance. Our corporate employees have transitioned seamlessly to working remotely and essential personnel, including research scientists, are in the lab and practicing all appropriate safety measures, social distancing, staggered work time, and wearing personal protective equipment. Despite these challenging times, we continue to advance our programs with the ultimate goal of benefiting patients. Before I review the progress we made in the last quarter, I would like to reflect on the headway our team has made in bringing three first-in-class drugs from concept to clinic in the last 18 months. I am incredibly proud and privileged to lead such a passionate team. Even during this unprecedented time, what has not changed is our adherence to our core operating principles, as outlined on Slide 3. I strongly believe that the most important way we can deliver value to our shareholders and our stakeholders is to advance toward the important goals we laid out earlier this year because our company and our science must continue to evolve. As we work to become a key player in the gene and cell therapy market by realizing our mission of improving patient care through our innovative product portfolio, I'm pleased to report that at this point, we remain largely on track with our previously disclosed clinical timeline. I will provide a more detailed update on our clinical program in just a moment. Our team also wants to underscore that we are on track to achieve the 2020 goals we laid out on our last call, while preserving financial resources, which should allow us to continue to operate well into 2021. We have made considerable progress in streamlining the organization to focus on health. Key initiatives this quarter included: completing the sale of several of our non-health assets; improving operations at both Trans Ova Genetics and Exemplar, so they are net contributors of capital this year; barring significant adverse impact from the COVID-19 pandemic; and substantially reducing cash burn at MBP Titan, which I will discuss in greater detail later in the call. In the first quarter of 2020, Precigen spending, which includes segment EBITDA plus unallocated corporate costs, was approximately $30 million versus $39 million in the first quarter of 2019. This decrease was primarily attributable to significantly lower costs for corporate functions, which were streamlined to fit the narrower focus of the company. These numbers exclude the additional cost savings of $12 million, which resulted from the sale of certain of our non-core bioengineering assets, which closed in the first quarter. Another top priority for us is to unify our health care businesses to become one Precigen, as you can see on Slide 4. We have made major strides here, allowing us to deploy resources, maximize collaboration and streamline workflows more efficiently. Specifically, we have taken steps to integrate our health businesses to achieve synergies at both the corporate and company levels. We have also streamlined our infrastructure, eliminated redundancies, reduced corporate costs, and increased communication across our health businesses. In addition to Precigen, these include Precigen ActoBio, Precigen Exemplar, and Precigen Triple-Gene. We have focused the efforts of our health subsidiaries on a pipeline program that we believe has the most potential value. Externally, this closer integration is evidenced through our recently updated website, precigen.com, which consolidates information on each of these respective programs in one place. We hope that you find this informative. On Slide 5, you will note our strategy for our non-health care assets. I'm pleased to report that we are making progress in our overall objective to reduce our capital allocation to both businesses. Consistent with our goal to allocate resources in a manner that best creates value, it is our commitment to reduce non-health spending. We continue to implement additional efficiency measures at MBP Titan while exploring the options to partner or sell the business. The ongoing COVID-19 pandemic and the current state of the energy sector are especially challenging for the prospect and operation of this business. We expect that progressing this non-health platform will require significant capital and efforts to secure such capital have been hampered by world events. As a result, we have made the difficult but necessary decision to suspend operations in our MBP Titan facility and minimize the expense of the operation while continuing to maintain the potential value of the platform for a brighter economic situation. Specifically, we have taken steps to significantly reduce our MBP Titan workforce and to cut operating costs. While at the same time, prioritizing the preservation of intellectual property and technology. I also want to announce that by mutual agreement, David Witte, CEO of MBP Titan, is no longer with the company. I want to thank the entire MBP Titan team for their contribution in advancing our innovative Methane Bioconversion Platform. We will continue to evaluate options for this technology. Another highlight this quarter was the upswing in financial performance at Trans Ova Genetics due to the combined impact of expanding the commercial dairy business and achieving operational efficiency. Turning now to update our health clinical programs on Slide 6. I am pleased to reaffirm that we remain on track to meet our previously announced goals for readouts and other milestones in 2020. Turning to Slide 7. On April 2020, we announced that the FDA has cleared the investigational new drug application to initiate a Phase I/II trial for PRGN-2009, a first-in-class, off-the-shelf investigational immunotherapy, utilizing the AdenoVerse platform designed to activate the immune system to recognize and target HPV-positive solid tumors. HPV-positive cancers represent a significant health burden in indications such as head and neck, cervical, vaginal, and anal cancer. Globally, high-risk HPV infections cause nearly 5% of all cancers. PRGN-2009 leverages Precigen UltraVector and AdenoVerse platform to optimize HPV antigen design in combination with its gorilla adenovector with a large payload capacity and the ability for repeat administration due to very low to nonexistent prevalence in the human population. Preclinical testing of PRGN-2009 has demonstrated robust HPV antigen-specific immune response and potent antitumor activity as a monotherapy and in combination in humanized mass models of head and neck cancers. Please now turn to Slide 8. The Phase I portion of this study will follow a 3+3 dose escalation to evaluate the safety of PRGN-2009 administered as a monotherapy and to determine the recommended Phase II dose followed by an evaluation of the safety of this combination of PRGN-2009 and investigational bifunctional fusion protein M7824 in patients with recurrent or metastatic HPV-associated cancers. The Phase II portion of this study will evaluate PRGN-2009 as a monotherapy or in combination with M7824 in patients with newly diagnosed stage 2 or 3 HPV-16 positive oropharyngeal cancer. PRGN-2009 is under development through a cooperative research and development agreement (CRADA) within the laboratory of Dr. Jeffrey Schlom at the National Cancer Institute. This CRADA has allowed Precigen to rapidly and cost-effectively advance PRGN-2009 to the clinic. The Phase I/II clinical trial will be conducted at the NCI and will be led by Dr. Julius Strauss and Dr. James Gulley. Turning to Slide 9. We reaffirm that we are on track for initial data readouts from the IP arm of our Phase I clinical trial of PRGN-3005 in ovarian cancer during the second half of this year. I'm happy to announce that we have completed dosing of the dose level 2 of the IP arm of this trial. We are very encouraged by our ability to successfully manufacture UltraCAR-T. And to date, we continue to have 100% manufacturing success. Fred Hutchinson Cancer Center has paused non-COVID-19 Phase I clinical trials due to the medical centers' prioritization of COVID-19 patients at the hospital. PRGN-3005 was part of this pause. It is important to note that it was neither related to safety issues nor any study-related COVID-19 infection. Today, I'm pleased to announce that we are amongst the first trials to have the pause lifted and are actively recruiting again. As seen on Slide 10, we believe this is in part due to the characteristics of our platform, the centralized manufacturing advantages, and lack of liquid depletion treatment to patients prior to UltraCAR-T administration. Unlike conventional CAR-T, UltraCAR-T cells do not use lentivirus and do not require long ex vivo expansion in large manufacturing facilities. Instead, UltraCAR-T uses nonviral, rapid manufacturing at the hospital, allowing for the treatment of patients the day after gene transfer. We view this as an important competitive advantage in a post COVID-19 world. Now moving to Slide 11. The PRGN-3006 trial continues to enroll and to date has not experienced any COVID-19 related interruption. The trial was initially structured to dose patients in a non-lymphodepletion arm followed by the lymphodepletion arm at the set dose level. The IND has been amended, and the FDA has allowed us to concurrently dose patients in both arms. We are currently enrolling patients in both lymphodepletion and non-lymphodepletion deflation arms and are excited to compare them. To date, we continue to have 100% manufacturing success. We remain on track for initial data readouts and look at the kinetics in the second half of 2020. I will now go back to reviewing the rest of our portfolio on Slide 12. I would like to move on to ActoBio, AG013, which is a partner with Oragenics. Oragenics recently announced that early top-line results of the Phase II clinical trial of AG013 to prevent oral mucositis in the head and neck of cancer patients receiving chemo radiation did not demonstrate statistical significance on the primary endpoint of severe oral mucositis durations when compared to placebo. We look forward to hearing from the company as development becomes available. Turning now to AG019, as noted in an earlier investor update, Precigen ex vivo remains on track to announce interim data for the first cohort of Phase IB/IIA clinical study in the third quarter of 2020. AG019 is a first-in-class, disease-modifying, antigen-specific investigational immunotherapy for prevention, delay, or reversal of type 1 diabetes, a disease with no approved disease-modifying treatment that is currently managed through lifestyle modification and diet combined with exogenous insulin. We have implemented a temporary path to randomization for the last remaining study cohort of the Phase IIA study, which is the combination of AG019 plus anti-CD3 antibody, teplizumab in patients 12 to 17 years of age. This temporary part is neither due to any study-related issues nor is based on any study-related COVID-19 infection. We decided to do this out of an abundance of caution, given the immunosuppressive nature of teplizumab against the background of the evolving COVID-19 pandemic. Another exciting asset in our portfolio is INXN-4001, a novel gene therapy for heart failure patients, which is being developed by our majority-owned Precigen Triple-Gene subsidiary. We expect to complete the Phase I trial and provide top-line data by the end of 2020. I will now turn the call over to Tom Samuelson to give a financial update.

Thank you, Helen, and good afternoon to everyone on the call. As previously reported in our last quarterly conference call, we closed the sale of $55.2 million in legacy bioengineering assets and $35 million in our common stock. These transactions, not only provided Precigen with substantial additional capital, but also significantly reduced our 2020 requirements by an estimated $46 million, based on the aggregate expenditures incurred in 2019. Please recall that segment EBITDA, which is fully defined in our SEC filings, is generally the sum of net cash operating expenses and capital expenditures. Among continuing operations, our Q1 2020 and Q1 2019 segment EBITDA losses plus corporate costs, which are not allocated to individual segments, totaled approximately $30 million and $39 million, respectively. A large component of this reduction of approximately $9 million or 23% was a $7.8 million or 43% reduction in our unallocated corporate expenses, achieved largely by eliminating redundancies and decreasing professional fees. Despite continued advancement on our multitude of clinical and preclinical programs in oncology and immunology, we maintained a comparable quarter-over-quarter segment EBITDA therein as planned. As Helen alluded to beforehand, we made the difficult decision to dramatically decrease expenditure towards MBP Titan, which required $36.7 million in 2019 and $8.8 million during the first quarter of 2020. In the second quarter, we are already significantly reducing these expenditures, ultimately to only those required to preserve the IP and technology. At Trans Ova Genetics, revenues grew quarter-over-quarter by 12% to $16.8 million, while segment EBITDA increased by approximately $1 million. Segment EBITDA at Exemplar and ActoBio Therapeutics also improved by $0.9 million and $0.4 million, respectively, over the same quarter last year. On March 31, 2020, we had cash, cash equivalents, and short-term investments of approximately $149 million and anticipate these funds to last well into 2021. In closing, we enacted many of these operational improvements during the first quarter, and thus, we expect to see even greater impact in our Q2 results. I would also like to note that as is the case for every organization today, the effects of the ongoing COVID-19 pandemic will continue to impact our company. We advise you that further developments with respect to the pandemic may have an adverse effect on our operations. I would now like to turn the call over to Helen for concluding remarks.

Thank you, Tom. During 2020, we expect to report numerous data sets and achieve new milestones, as you can see on Slide 13. In closing our call today, I want to confirm our confidence in Precigen's potential to transform the healthcare landscape with our innovative and focused portfolio. Despite the current challenges presented by COVID-19, we continue to deliver on our clinical plans and confirm our financial guidance for 2020. We are committed to managing our company in a financially prudent, fiscally disciplined, and transparent manner by reaching a data-driven go/no-go decision early in the development process to achieve our mission of bringing our potentially transformative treatment options to patients. With that, we will now open the line for questions. Operator, please begin.

I would now like to turn the call back over to Steve Harasym.

Thank you, Kevin. Joining us today for our Q&A session will be Helen; Tom, who you just heard speak; and our CFO, Rick Sterling. I'd like to turn it back to our operator, who will assemble the queue now. Thank you.

Congrats on all the progress. Maybe just starting off on PRGN-2009. Can you discuss what you've seen preclinically with the combination with [indiscernible] alpha and how we should think about the potential for monotherapy efficacy or signals of efficacy in this study versus the combination? And how do you think about the combination for other potential combinations?

Thank you very much, Jason. Excellent question. Actually, in collaboration with NCI and the studies that have been done at NCI, we evaluated the efficiency and efficacy of PRGN-2009 in a number of the humanized mass models of head and neck in HPV-positive cancers. The data has been quite encouraging from the reduction or stabilization of the tumors in several different indications, especially those that are HPV-positive. In combination, we have seen enhancement in tumor reduction as well as activation of immune cells. The importance of the combinations we currently have is with the bifunctional molecule that targets the TGF-beta pathway, which in various indications where checkpoint inhibitors are non-functional. The design of off-the-shelf immunotherapy is critical; we are using it in a window of opportunity, especially in the Phase II design at a time when patients are not receiving any treatment. This is a very exciting area, and we believe that our PRGN-2009 shown in monotherapy in HPV-positive indications, as well as in combination with several of our own portfolio molecules, will present a very exciting opportunity to move forward. What makes PRGN-2009 unique is the combination of our UltraVector antigen design and our gorilla AdenoVerse platform, which allows for multiple dosing and has a large payload capacity. We are looking forward to this study.

That's great, Helen. My second question, just for both the 3005 and 3006 programs, you reiterated again that you're maintaining this 100% manufacturing success rate. Can you give us a sense of what this represents in total number of patients or manufacturing processes you've now successfully completed? Or I guess, maybe to put it differently, how far along the path are you to having confidence that a very high success rate is sustainable in a multicenter setting?

Right. Excellent. First of all, PRGN-3005 is done at Fred Hutchinson for solid tumors and PRGN-3006 for liquid tumors, AML patients at Moffitt Cancer Center. This was very important for us that the manufacturing can be duplicated across several centers. At this point, we have demonstrated 100% manufacturing success in both sites despite different facility sizes. We are confident in our capabilities, as we've reported in this call for PRGN-3005; we've completed the second dose cohort. We have also completed the first cohort in a lymphodepletion and the second cohort in non-lymphodepletion. We received the allowance to concurrently do the lymphodepletion now as well. With numerous patients enrolled, and from our studies designed as 3+3, we have dosed several patients without any manufacturing failures, giving us confidence in this trial.

Okay, great. And then if I can just squeeze in a last one for Tom or Rick. I'm sorry if I missed this in Tom's comments before, but can you quantify the cost savings that you think you can capture from the MBP Titan reductions you're implementing for 2020?

Yes. So thanks for the question, Jason. We're not providing specific guidance on an exact number for 2020. What I can tell you is that the 2019 segment EBITDA for MBP was $36 million, and the 2020 Q1 was approximately $9 million. You can draw conclusions from that for now.

And maybe, Jason, one thing that I can stress is that we have significantly reduced costs at MBP Titan, and this will reflect in the next quarter as it comes.

This is RK from HCW. A couple of quick questions. The first one, you talked about some changes on the PRGN-3006 study. Can you tell us what additional changes you are proposing outside of the concurrent dosing of patients in both arms?

Got it. Thank you, RK. In regard to the PRGN-3006, the original IND we had was discussed with the FDA; we would start with the non-lymphodepleted arm to examine manufacturing ability and safety. After completing the non-lymphodepleted arm, we were going to initiate the lymphodepletion arm. This staggered design would have resulted in a lengthy gap between the two arms. Now we can concurrently enroll patients, allowing for more rapid movement and comparison between non-lymphodepletion and lymphodepletion.

Okay. There's going to be quite a bit of data coming up in the next couple of quarters across four of your programs. Focusing on the diabetes program, where you're expecting some interim data in the third quarter. Two questions. What sort of early data will we see? And how do you plan to take this program forward? Can you do it yourselves, or do you need collaborators to finish it to late-stage as well as trying to commercialize it?

Sure. Thank you. For AG019, there are four arms in the Phase IIa that compares AG019 in both adult and adolescent as a monotherapy and in combination with anti-CD3. The first readout will be concerning safety and pharmacokinetics for the Phase Ia. In the interim data, we will evaluate outcomes at six months for patients; this molecule is particularly important for type 1 diabetes with no treatments available other than lifestyle modifications and insulin. The readout at six months will be exciting, followed by one at twelve months on monotherapy and in combination with anti-CD3. Based on these results, strategic decisions will be made for the program. Overall, our strategy involves continuous evaluation of our portfolio with efficiency in mind, considering partnerships as a significant part of our approach.

And I'm not showing any further questions at this time.

Great. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.