Precigen, Inc. Q3 FY2022 Earnings Call

Good day, and welcome to the Precigen Third Quarter 2022 Financial Results Conference Call. Today, all participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. I would now like to turn the conference over to Steve Harasym, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and thank you for joining us today. With me are Dr. Helen Sabzevari, President and CEO; and Harry Thomasian, CFO of Precigen. Helen will provide an update on the significant progress we have made across our pipeline programs and highlight our anticipated upcoming milestones. After which Harry will review our third quarter 2022 financial results. Following our prepared remarks, we will open the call to Q&A. Before we begin, please note that during today's call, we will make various forward-looking statements. Investors are cautioned that such forward-looking statements are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ from those indicated by our forward-looking statements. Please read the Safe Harbor statement in the press release as well as 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 to Dr. Sabzevari. Helen?

Thanks, Steve, and thank you for joining us today. I'm pleased to report to you today that Precigen made significant progress during the third quarter of 2022, while focusing on the assets in our portfolio offering the greatest potential for increasing shareholder value in the most efficient way possible. Focus is our mantra here at Precigen, and our strategy is straightforward. First, we focus on markets with ultra-high unmet need. The indications we are pursuing offer the potential for an accelerated regulatory and developmental pathway. Second, we continue focusing our research, development, and manufacturing operations by making early decisions to pursue therapies with higher probabilities of success. The ability to create consistent manufacturing at multiple sites also figures into our decision-making as we seek to decrease product costs and provide therapeutic access to a broader patient population. We need to move away from traditional concepts of centralized manufacturing, especially when we are dealing with patient populations suffering from diseases where earlier treatment makes a big difference. Finally, we are focused on advancing therapies that are not only differentiated in their utility but also potentially in their pricing as we change the paradigm in manufacturing and development. I will talk about how our UltraPorator technology is proving to be a game changer when it comes to enabling overnight local manufacturing and distribution. We believe that we are entering a new era of value-based care and want to be ready with products that meet the future requirements of our healthcare system. Another area of focus is fiscal discipline. Thanks to our efforts, we have reduced the cost of SG&A and are now allocating further resources towards our clinical and commercialization efforts. I will now update you on our clinical programs. First, our AdenoVerse immunotherapy platform for PRGN-2012 in Recurrent Respiratory Papillomatosis (RRP), a devastating orphan disease with severe unmet medical need as recurring surgeries remain the only option for these patients. The burden on these patients is immense, with many requiring hundreds of lifetime surgeries at a very high cost. Furthermore, recurring surgeries only temporarily treat the symptoms of RRP and do not lead to remission. These surgeries can actually worsen the condition of RRP over time, as they can increase the spread of the virus, leading to comorbidities, including significant breathing problems and loss of local function. There is an urgent need for therapeutic treatment options such as PRGN-2012. PRGN-2012 has been designated as an orphan drug for patients with RRP. We are extremely pleased with the rapid progress of this clinical program. To recap, we dosed the first patient in the Phase 1 study in March 2021, during the height of the COVID-19 pandemic. Enrollment and dosing are complete in the Phase 1 dose escalation and dose expansion cohorts, with 15 patients treated and a 12-month follow-up nearly complete. PRGN-2012 has demonstrated an excellent safety profile with all subjects receiving the full treatment course with four PRGN-2012 administrations. There have been no dose-limiting toxicities and no treatment-related adverse events greater than Grade 2. We are looking forward to presenting what we believe will be highly compelling safety and efficacy data from the dose escalation and expansion cohorts of PRGN-2012 at the virtual R&D event in early January 2023, which is timed to coincide with the 41st Annual JP Morgan Healthcare Conference. We believe there is a significant market opportunity for this drug in RRP. Our estimate of the U.S. and EU adult and juvenile patient population is approaching 30,000 cases. We feel there are substantial case numbers outside of the U.S. and EU that could bring the global population to over 75,000. We also believe that due to limited disease awareness, reported numbers would understate the true prevalence of this disease. This could present a market opportunity for the U.S. and EU alone of over $1 billion. These are our preliminary estimates, and we plan to provide further details on the patient population, the burden of the disease on patients, and market opportunities during the date of the presentation. Dr. Clint Allen, Senior Investigator at NIH and a Lead Associate Investigator for the PRGN-2012 clinical trial, will lead the presentation. At the same time, I'm pleased to report that enrollment in the Phase II study is progressing rapidly with 16 patients enrolled to date. Given the high unmet medical need for this patient population, we have been in ongoing discussions to evaluate the various regulatory paths with the FDA. Now for an update on PRGN-2009, our AdenoVerse Immunotherapy in HPV-associated cancers. We completed enrollment in the Phase I monotherapy and combination with six and 11 patients enrolled, respectively. All patients were in Stage 4 recurrent or metastatic HPV-associated cancers and had failed multiple prior therapies, including checkpoint inhibitors. Interim data from the Phase I combination arm demonstrated encouraging safety and efficacy with a 40% objective response rate, including both complete and partial responses in a patient population that has failed previous checkpoint inhibitor treatment. Patient follow-up is ongoing, and we are looking forward to hosting an investigator-led Phase I data presentation in the first half of 2023. Enrollment is nearing completion in the Phase II monotherapy arm in newly diagnosed oropharyngeal squamous cell carcinoma patients, with 19 or 20 anticipated patients dosed and patient follow-up ongoing. Based on our encouraging data thus far, PRGN-2009 immunotherapy has a broad potential to address the estimated 5% of all cancers attributed to HPV-associated malignancies, including cervical cancer, head and neck cancer, and anal cancer. Let's now turn to our UltraCAR-T trial. We completed enrollment for PRGN-3006 in the Phase I dose escalation cohort of the Phase I/Ib study in relapse refractory AML patients. Dr. David Solomon of Moffitt Cancer Center and the lead investigator for the PRGN-3006 study will present Phase I safety and efficacy data at ASH on December 12, 2022. We are encouraged by the results to date and are looking forward to the presentation in patients with relapsed/refractory AML, which represents a potentially significant benefit to this patient population. The Phase Ib study of PRGN-3006 UltraCAR-T has been expanded to Mayo Clinic in Rochester, Minnesota, as the first of several new sites expected as part of the multicenter extension of this study. The first patient was successfully dosed at this expansion site. Additionally, as previously announced, we received FDA clearance to incorporate repeat dosing in the expansion phase of this study. This is an important milestone for Precigen as well as for the field of immunotherapies, as it demonstrates the proof-of-concept for the scale-out of overnight decentralized UltraCAR-T manufacturing using the UltraPorator. Site activation is in progress at several additional major cancer centers across the U.S. UltraPorator is a game changer for the field, and we are pleased that renowned institutions such as the Mayo Clinic are partnering with us to advance its development. PRGN-3006 has been granted orphan drug designation as well as fast track designation for patients with relapsed refractory AML. Now for PRGN-3005, our UltraCAR-T treatment for advanced ovarian cancer. Enrollment is complete in the Phase 1 dose escalation cohorts of the intraperitoneal and intravenous arms without lymphodepletion, as well as in the lymphodepletion cohort in the IV arm. Patient follow-up is ongoing, and we expect Phase 1 data to be presented in the first half of 2023. You may recall that during our second quarter of 2022 call, we announced the FDA's clearance to incorporate repeat dosing in this study, and we are pleased to report that the first patient has received a repeat dose via IV infusion. Enrollment is ongoing in the Phase 1b expansion study at Dose Level 3 with lymphodepletion prior to IV infusion. Site activation is in progress at multiple major cancer centers in the U.S., yet another point of validation for the scale-out of our overnight decentralized UltraCAR-T manufacturing using UltraPorator. This is an extremely important study. There have been minimal therapeutic advances in this patient population, with a 10% or less response rate in ovarian cancer with current treatment. I participated in a panel at a conference earlier this week with some prominent figures in cell and gene therapy, including the CAR-T space. It is clear that there remains significant unmet need and opportunity for innovation in solid tumors. We believe with our UltraCAR-T platform, we have a unique solution to address these limitations. Finally, our UltraCAR-T trial in PRGN-3007, which is being evaluated in the treatment of advanced ROR1+ hematological and solid tumors. PRGN-3007 uses our next-generation UltraCAR-T technology and incorporates intrinsic PD-1 down regulation in addition to three effector genes: a CAR, membrane-bound IL-15, and a kill switch. Intrinsic blockade of PD-1 expression is crucial for addressing the inhibitory tumor microenvironment and eliminating the need for the checkpoint inhibitor combination. The Phase 1/1b umbrella study in hematological and solid tumors is on track to initiate dosing this quarter. We look forward to an investigator-led trial-in-progress presentation of PRGN-3007 at ASH on December 11, 2022. I will now turn the call over to Harry, who will review our third quarter 2022 financial highlights. Harry?

Thanks, Helen, and good afternoon to all of you on the call. I'd like to start by highlighting the great progress we've made over the past quarter in strengthening our balance sheet. As previously announced, during the third quarter, we completed the sale of our wholly-owned subsidiary, Trans Ova Genetics, for $170 million. The proceeds from this sale have provided us the ability to retire our convertible notes. In regards to those convertible notes, during the third quarter and through today, we have executed opportunistic open market repurchases, retiring $144 million of our outstanding convertible notes that are due July 2023, bringing our outstanding debt balance as of today to $56 million. The volume weighted average price of the repurchase activity was approximately 98.4% of par. Taking into consideration the discount to par and the savings on future interest through the stated maturity date, we will realize cash savings of over $5.4 million. I'd also like to spend some time highlighting certain aspects of our operating results for the third quarter and year-to-date. As a reminder, Trans Ova's historical results are reported as discontinued operations as was the case beginning with the second quarter. As I've stated on previous quarterly update calls, we have pursued a variety of cost reduction initiatives over the past couple of years, specifically as it relates to our SG&A costs. These initiatives have borne fruit. As you can see in our financial statements, by comparing SG&A expenses quarter-to-quarter and year-to-date to the prior year-to-date, those costs have decreased 8% and 9%, respectively. Based on these reductions in our overhead costs, we are now able to focus on the continued advancement of our programs and the potential future commercialization of such programs. As for non-operating expenses, with the retirement of our convertible notes, cash interest expense was lower for the three and nine months ended September 30, 2022, versus the prior year periods. Looking at the remainder of this year and into next year, cash interest expense will be significantly lower in the fourth quarter of this year and the first half of next year through the maturity of our remaining notes. With the sale of Trans Ova and the retirement of debt, our balance sheet is much stronger than it was earlier this year. We ended the third quarter with cash, cash equivalents, short-term investments, and restricted cash of $153.8 million. This provides us with a cash runway into the early part of the fourth quarter of 2023. Overall, we have been successful in implementing our strategies to date, and we look forward to continued success in moving our product candidates through the clinic.

That concludes our prepared remarks for today, and we are now happy to take your questions.

Hi, thank you for addressing the questions and congratulations on the progress. I have two inquiries. First, regarding the 2012 trial, could you provide some details on the patients enrolled in the Phase II trial, particularly their baseline characteristics and surgeries? Secondly, about the 3005 trial, can you share any updates on the patient who was retreated? Was the procedure successful, and what can you tell us about safety so far? Thank you.

Sure. Hi, Jason. Regarding the PRGN-2012, the patient population we are treating consists of the most severe cases. These patients have typically undergone at least three surgeries, with many having had significantly more. Some require surgery almost every month, every four to six weeks. We are not targeting early-stage disease; our trial focuses on the most challenging cases to treat. As for the data we will be reporting soon, it will cover safety during the dose escalation and expansion cohort. We are very excited about the data, as these patients have had no real treatment options aside from repeated surgeries, some having undergone hundreds of procedures throughout their lives. This makes the disease very difficult to manage. Up to now, there has been no treatment, and surgery merely involves removing the tumor, which tends to recur continuously. Regarding PRGN-3005, we have redosed the patient via IV infusion, and I’m pleased to report that the patient is doing very well. This patient had received the first dose some time ago and has continued to do well after the second dose. We are eagerly awaiting reports in the first half of next year. As I mentioned during the prepared remarks, I recently participated in a panel discussion on cell and gene therapy with some leading experts in the field. It was noted that current treatments, such as CAR-T, struggle to effectively address solid tumors. The conversation about our overnight manufacturing capability and the potential for these cells to remain effective in solid tumors, like ovarian cancer, is very promising. It is indeed an exciting time for us, especially regarding the solid tumor indication, and we are looking forward to the presentation next year.

Thanks, Helen. I appreciate all the details.

Thank you very much. I wanted to ask a question about the AML UltraCAR-T program. Can you discuss the reasoning behind your decision to concentrate on dose Level 3? I believe there was some discussion in the ASH abstract regarding expansion and expansion kinetics. What led you to focus solely on Level 3? Was efficacy a factor? Additionally, can you clarify whether, for patients receiving multiple doses in the AML program, the product will be manufactured all at once and divided into two doses or if it will involve two separate manufacturing runs?

Great. Thanks. First of all, for PRGN-3006, the decision on dose Level 3 was based on the efficacy that we reported. If you recall, at ASH last year, we already at dose Level 1 and 2 showed objective responses, 50% objective responses, and we are talking about dose levels that were between approximately 100,000 to 1 million per kilogram. So, very low doses. The maximum dose we have infused was around 28 million. Given the capabilities of this platform, the B cells are not exhausted, and they don't require activation outside. We believe that we do not need to infuse hundreds of millions and billions of these cells, which could also lead to severe CRS and some toxicity and neurotoxicity seen with other types of cell therapy, especially CAR-T. So, that was the reason, based on both safety and efficacy, we decided the third dose was sufficient for us to move forward and expand, while looking at more extensive efficacy data from a larger patient population. We are fortunate to have fast-track designation and orphan drug designation, providing us the opportunity to position this therapy rapidly in a larger patient population. The incorporation of lymphodepletion led to a more rapid expansion of these cells, which was also a pivotal reason for focusing on this dose. We are looking forward to expanding our patient recruitment now with major clinical centers joining us in the next few months.

Okay. Excellent. That's super helpful. And if I can just ask one more just on the ROR1 3007 UltraCAR-T program, I guess what's gating to initiating patient dosing for that?

I'm going to be very frank and open. It has been a lot of changes that have happened internally at Moffitt for their various committees. Our broad product is ready, and our investigators are prepared. The manufacturing is set, and we are just passing through the last committee and some of the bureaucratic processes that are taking place.

Okay. Understood. Thanks so much. I appreciate it.

Of course.

Hi, Helen and the team. Good afternoon. This is Arthur on for RK.

Hi, RK.

Hi. My first question is regarding the 2012. Could you remind us of the dose level for the 2012 in the expansion cohort? Additionally, on average, how many doses have the patients received to date?

Yes. So our dose levels will be 5 x 10 to the 11, and our patients received a course of four subcutaneous injections. I apologize for the confusion.

Got it. Thanks for that. And I noticed that for the Phase 2 study, you tend to enroll up to like 48 patients according to the clinical trial data. Have you spoken with the FDA regarding the size of the study, and how would that be efficient for use as registration trial data?

That's an excellent question, and that's exactly some of the discussions that we are having with the FDA in regard to the regulatory pathway for this molecule, in view of the safety and efficacy that we are seeing in our expansion cohort.

Thank you for the information. My final question is about the dosing regimen for both 3005 and 3006. How do you decide on the dosing interval for patients? Is it typically a fixed schedule or tailored more to individual physician preferences?

Yes. Excellent question. Unlike off-the-shelf therapies, conventional CAR-Ts see one dose, and that's all they can produce. The only instances where there are multiple doses within the first two or three weeks is with off-the-shelf therapies. The reason is that the cells, as shown in clinical data, do not sustain themselves. This often results in very high costs and severe lymphodepletion events. Our redosing is not required on a weekly basis since the cells infuse within the patient. They have the capability of expanding and manufacturing inside the patient, which we have demonstrated through follow-up. Therefore, the dosing is at the discretion of our oncologists based on the needs of the patient. Again, this differentiates us from what you see in off-the-shelf products, both in terms of cell quantity and patient care approach.

Awesome. Thanks for the additional color, and thank you for taking my question, and congrats on the progress.

Hey everyone. Thanks for taking my questions and congrats on the progress. I have a few questions here. Maybe regarding the 2012 asset: Given the exciting expansion data you're expected to present in early January, is the timing of that R&D event also coinciding with when you believe you'd be able to give a greater level of detail around those potential regulatory pathways?

I think, yes. That's an excellent question. At this point, I will not make any comments regarding that. However, as soon as we can, we will address the regulatory aspects. I can say that we are really looking forward to this presentation as we are excited for this patient population and what PRGN-2012 is currently showing in regard to safety and efficacy. We are pleased that our investigators can present this data in early January.

Okay. That's fair. And then I have a few questions on the 2006 asset. First, in terms of the timing that it takes to get that tech transfer and site activations done for the decentralized manufacturing UltraCAR-T, has that all been in line with your expectations in terms of how long it takes to get that done? And then my second question for this asset is, is the repeat dosing in the Phase Ib still anticipated to start this year?

The repeat, first of all, regarding tech transfers: Originally, when this platform was designed and advanced, the whole concept was that it could be taken up at any cancer center, and the tech transfer process had to be straightforward enough for any hospital clean room to implement it. Even though it was seen as a dream, we are thrilled that 2.5 years after starting these trials, not only have we shown the capability of UltraCAR-T to be manufactured, but we are also witnessing preliminary signs of efficacy. Regarding the tech transfers, I have to say that they are in line with our expectations. The staff at the clean room in the hospital executes this process through the SOPs that we have provided, and this is not a lengthy endeavor. We're not talking about months or six-month training. We continued with our tech transfers even during COVID when many manufacturing sites were shut down. We have now several major sites that are coming online for our hematological trials and expect to see significant progress in the next few months as they enroll patients.

Okay. And then, if I could squeeze one more question in for the 3006: Specifically at dose level 3, what kind of upgraded data can we expect in the ASH presentation beyond what was revealed in the abstracts?

You will see all doses reported, both with and without lymphodepletion. The most important aspect is the safety profile, which has shown no toxicity, along with the efficacy data in this patient population. These patients have only a couple of months to live and have failed multiple treatments, including a minimum of three to six prior therapies and bone marrow transplants. To see objective responses in this patient population is critical, and we will be focusing on those outcomes as well as detailing the science behind the UltraCAR mechanism working directly with the patients.

Okay. Great. That's really helpful. Thanks, guys, and congrats on the quarter.

Thank you very much.

At this time, we are showing no further questioners in the queue. This concludes our question-and-answer session. I would now like to turn the conference back over to Dr. Sabzevari for any closing remarks.

Thank you, Operator. As you can see, we have made substantial progress across our clinical pipeline and corporate goals this year. We continue to focus on fiscal discipline and maximizing our balance sheet to drive our lead clinical programs through the clinic and towards commercialization. Retiring a substantial portion of our debt reduces overhang and adds additional operating capital to our balance sheet. On the clinical side, we are eagerly anticipating releasing the complete Phase 1 dose escalation and expansion data from our PRGN-2012 trial in early January. We are also looking forward to the upcoming presentations for our UltraCAR-T programs at ASH in December. As always, we are deeply appreciative of the support from our shareholders. We continue to strive towards creating shareholder value and focus on bringing treatment to the market with differentiated pricing to address the high unmet medical need. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.