Precision Biosciences Inc <span class=Graphic Source: Precision BioSciences, Inc.

Introduction: What is Precision BioSciences, Inc.?

Precision BioSciences, Inc. (NASDAQ: DTIL) is a life sciences company focused on utilizing its ARCUS genome editing platform to primarily treat human diseases and secondarily to provide food/agricultural solutions. Their early-phase therapeutics arm is focused on allogenic CAR-T cell immunotherapy and in-vivo gene correction for clinical-phase therapeutics covering primarily non-Hodgkin lymphoma (“NHL”), acute lymphoblastic leukemia (“ALL”), chronic lymphocytic leukemia (“CLL”)/small lymphocytic lymphoma (“SLL”), and multiple myeloma (“MM”) for a total market size of $40.7B (2022).

Founded in 2006 in the US, Precision Bio has since grown to over 200 employees with revenues of $22M (FYE 2019) and a TTM EV/Sales valuation of 12.8x.

Products: Precision Bio has a pipeline of 8 therapeutics (3 clinical) and 4 food-based products under development. On their therapeutics side, they have partnered with Servier, a French pharmaceutical company, in 1Q 2016 for their allogeneic CAR-T cell therapies covering up to six unique antigen targets and SpringWorks (NASDAQ:SWTX) in 3Q 2020 covering CAR-T for MM. On their food-related side, they have partnered with Dole Food Company, the American ag-multinational for banana-based disease prevention.

Customers/market: Precision Bio is targeting a $40.8B market (2022) for its combined clinical-stage therapeutic lines. Multiple myeloma alone is projected to reach $22.4B (CAGR: 17%), non-Hodgkin lymphoma at $9.1B (8.4%), acute lymphoblastic leukemia at $2.9B (5.3%), and chronic/small lymphocytic leukemia at $6.4B (6.2%). The most promising market varies based on the availability of other approved therapeutics, but on size and growth alone MM is a clear winner making Precision Bio’s candidate PBCAR269A a key therapeutic to follow, though considering the expected generic availability of Revlimid in 2021.

Management: CEO/Co-Founder: Matthew Kane has led Precision Bio since its inception in 2006. He doesn’t appear at first glance to be a science-oriented leader, having completed an MS in Biomedical Engineering and MBA focused on health-sector management. His bio reads that when he’s not working, you may be able to find him under a “squat bar,” due to his large stature. He previously worked for Suros Surgical Systems, a manufacturer of surgical technologies, which was later acquired by Hologic (HOLX).

Share Price Change under his leadership (IPO: March 2019 – Present): -63%.

CSO/Co-Founder: Derek Jantz, Ph.D., is Precision Bio’s, Chief Scientific Officer. He was the lead on developing the technology of the ARCUS genome editing platform, based on his research on the novel method for modifying DNA-recognition properties of the I-CreI homing endonuclease. He was a protein engineer prior and was an early developer of the zinc finger technology.

Strategy: Precision Bio is currently pushing their clinical phase therapeutics aiming for above-average results. They’re prioritizing allogeneic CAR-T therapies with the aim of large scale development in a cost-effective manner. They seem confident in their ability to run their proprietary one-step engineering process for the CAR-T cells with optimized cell phenotypes. Their goal is to plan to overcome the “fundamental clinical and manufacturing challenges” that have plagued CAR-T development.

It appears they’re a bit overconfident in their platform prioritizing a long-term development style rather than short-term hastened clinical pace hurting their ability to maintain pharmaceutical partnerships. Their CEO is a commercial specialist who utilizes a variety of scientific-oriented researchers to make the key decisions and it seems to hinder the company’s development and cash position. It would be helpful to see further pharmaceutical partnerships (not just scientific e.g. SpringWorks) to aid in less shareholder dilution (constant capital raises) and increase the cash position.

Financial position: Precision Bio has funded operations since inception primarily from the sale of convertible preferred stock and upfront payments for licensing arrangements, but has degraded slowly. 2020 is not expected to be a stellar year for Precision Bio with analyst estimates for revenue down -24% to $17M (3-year average being $13.2M) and cash as of 1H 2020 down -30% since 2019 and net losses up 40% (1H 2019/1H 2020).

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Of course, as with any early-stage biotech, net losses have occurred every year since IPO with 2019 coming in at a -$93M net loss and will remain low with rising expenses related to expanding therapeutic investments and the termination of the Gilead (GILD) Agreement (July 2020). Cash flow from operations as well is consistently negative with 1H 2020 amounting to -$52M. 2021 is expected to experience a rebound in growth with analyst estimates for revenue of +147% to $41.9M (nearly 2x previous peak-revenues). Precision Bio’s cash position is light at $127M (1H 2020), but above the 3-year average ($116M) citing enough liquidity to fund operations through the year and enough to make the company’s debt of $11M look small.

Investment thesis: Precision BioSciences is certainly not for the short-term investor looking for outsized returns. It seems that 2H 2020 will not produce any uplift in investor value considerations, however, 2H 2021 will be the time when the promise from clinical results shows (or doesn’t). Precision has struggled with maintaining pharmaceutical partnerships, but that doesn’t mean that promise in their pipeline may not attract any new assistance post-Phase 1/2a. It would seem this is a risky position that doesn’t compare to other investments in the biotech sphere (particularly for CAR-T exposure). It is a “buy” for the medium to long-term investor on a 2-year price target of $9.11 (30% upside).

Pipeline and partnerships: CAR-T is the focus, food not so much

1. Off-the-shelf CAR T Immunotherapy Pipeline:

Precision Biosciences Inc. Therapeutic PipelineGraphic Source: Precision BioSciences, Inc.

Top Therapeutic (CAR-T): PBCAR0191

PBCAR0191 is Precision Bio’s first gene-edited allogeneic CAR-T cell therapy which targets CD19. Development is run in partnership with Servier since 1Q 2016 and Precision is currently completing a Phase 1/2a trial for relapsed/refractory (“R/R”) NHL (a first of its kind) and R/R ALL. The NHL cohort includes a broader set of disease sub-states including mantle cell lymphoma (“MCL”) – an aggressive subtype of NHL (ODD designee). PBCAR0191, developed out of donor-derived T-cells modified from Precision’s ARCUS platform, recognizes the tumor cell surface protein CD19, a common target amongst B-cell cancers, which helps to avoid graft-versus-host disease.

In the first data readout from the 9-person study (Dec 2019), Precision showed no serious adverse events or dose-limiting toxicities. Of the 6 with NHL treated on varying dose levels, four showed objective tumor response (1 complete response) at day 28. Of the three with B-ALL treated on higher dosages (“DL2”), one patient achieved complete response at day 28. Precision has since increased dose levels (“DL3”) in their most recent tests and expects to provide updated interim clinical data from all cohorts no earlier than the 4Q 2020.

The potential market for PBCAR0191 is estimated in 2022 at $11.9B with a 6.85% CAGR.

Other CAR-T therapeutic updates:

  • PBCAR20A (ODD): In April 2020, Precision started patient dosing in a Phase 1/2a clinical trial with their second CAR T cell therapy product candidate, PBCAR20A for R/R NHL and CLL/SLL.
  • PBCAR269A (ODD): In June 2020, Precision started patient dosing in a Phase 1/2a clinical trial for their third CAR T cell therapy candidate.
  • PBCAR269A: Announced in Sep 2020, PBCAR269A will be evaluated in combination with nirogacestat, SpringWorks’ gamma-secretase inhibitor, in patients with R/R multiple myeloma (“MM”) through their newly formed partnership. The combination therapy clinical trial is expected to commence in 1Q 2021, pending further discussions.
  • Servier Partnership: Precision Bio and Servier have expanded their partnership in Sep 2020 to include two additional new hematological cancer targets and two new solid tumor targets.

2. In Vivo Gene Correction Pipeline:

Precision Biosciences Inc. In-vivo genome engineering PipelineGraphic Source: Precision BioSciences, Inc.

Top Therapeutic (in-vivo): HA01 Knockout Therapeutic

Precision Bio’s HA01 is a wholly-owned in-vivo therapeutic Precision announced in Jan 2020 targeting hyperoxaluria type 1 (“PH1”). It is a rare genetic-based disease affecting 1 in 500K in the USA. It is based on a function in the AGXT gene, which affects the kidneys. It leads to painful kidney stones and potentially renal failure if left untreated. Precision aims to knockout the HA01 gene (upstream of AGXT) which prevents calcium oxalate formations and ultimately can be potentially run as a one-time nuclease administration. Preclinically, it has shown promise in murine studies and human primates.

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Precision aims to select a clinical candidate in 2020.

Precision Bio’s pre-clinical candidate for HBV was seen as very promising to target as well, but no longer is trusted as such. It was an in-vivo gene correction that started in 2018 with Gilead Sciences. After less-than-stellar developments, Gilead and Precision “mutually” canceled the partnership in July 2020. This thereafter granted full rights back to Precision Bio but left an expensive development process to be solely managed by the cash-stressed Precision Bio. They stated they are pursuing other partnerships, but it will be a test of their skill and progress if they can find one after Gilead.

The IND submission date was postponed and is being reassessed.

3. Food & Nutrition Genetic Engineering Pipeline:

Precision Biosciences Inc. Food PipelineGraphic Source: Precision BioSciences, Inc.

Top Food/Nutrition Product: TR4 Pandemic-Resistant Banana

In June of 2020, Precision Bio’s wholly-owned subsidiary, Elo Life Systems, entered into a collaboration agreement with one of the largest banana producers, Dole Food Company, for co-developing through Precision’s ARCUS platform banana varieties that are resistant to Fusarium wilt (“Foc TR4”), a tropical banana disease. Under this agreement, Dole will fund post-proof-of-concept R&D for Elo, and Elo will receive royalties on any commercialized product.

Additionally, the Ultra-low Saturate Canola Oil was a promising candidate for producing ARCUS-optimized canola varieties with lower levels of saturated fatty acids. It was being co-developed with Cargill Inc.’s support since 2014, but in July 2020, the agreement was “mutually” terminated. The future is unknown as of now.

In summary, it seems Precision Bio’s ambitious plans for dually developing food/therapeutics have since translated into what seems to be an over-exhausted pipeline producing too few results for collaboration partners. Precision is left with the Servier, the SpringWorks (Sep 2020), and the Dole Partnerships after two promising collaboration agreements were terminated in 1H 2020. DTIL seems now to be less promising than investors expected and the stock price has reflected that (-51% YTD). The pipeline may not be poor in technological capabilities, but management has not been focused enough enabling needed results in a fast-paced development environment.

For more information on updates regarding science and priorities of the therapeutic line, please see either the August 2020 Precision Presentation or the October 2020 Chardan Conference Call.

Financial position: Uncertain revenue and no profitability insight

Financial projections for operating metrics of synthetic biology company Precision Biosciences Inc. 2020 and elo life systemsTable Source: Self Created | Data Source: Seeking Alpha – DTIL

Revenue/Costs: As seen above, Precision Biosciences has, unfortunately, ran into trouble in 2020 with two canceled partnerships in 2Q 2020. Analysts expect revenue to decline -24% by year-end 2020. This ends both the growth spurt Precision saw over the past 3 years and the milestone/collaboration payments for pipeline developments until further partnerships are formed. Analysts expect a resumption of activity in 2021 with revenue estimates showing $41.9M, the largest in the company’s history.

Regarding how analysts arrived at a revenue decline to $16.9M, Precision had historically received revenues from Gilead of $3.9M in 1H 2020 (vs. $6.7M in 1H 2019) which now is not expected to continue (canceled partnership). On the flipside, Precision is still recognizing the $105.0 million upfront payment from Servier with deferred revenue of $78.2M ($23.1 million in current liabilities).

In terms of revenue breakdown, for 1H 2020, 20% of revenues came from food development from Dole ($1.58M) and 80% of revenues from therapeutics ($6.49M). On a cost basis, it reflects similarly, 10% of costs are related to food development ($4.41M) and 90% related to therapeutics ($38.37M), highlighting further the focus on therapeutics.

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Balance sheet composition: a weak cash position, but no risk here

Balance Sheet of Precigen therapeutics in 1H 2020 with financial results of the year at a point in time for Precision Bio DTILTable Source: Self Created | Data Source: Seeking Alpha – DTIL

In terms of the balance sheet, there really isn’t much to tell. The cash position has slightly deteriorated since 2019 down to $127M (-30%), but still enough to get through the next year. Total debt is a minuscule $11M and unearned, but potentially recognizable revenue is $78M (Servier). All in all, though cash-light, Precision Bio is still sufficiently funded to continue operations through the year.

Valuation: Valuation of Precision Bio (<a href=

Table Source: Self Created | Data Source: Seeking Alpha – DTIL

In summary, the author will say that a +30% upside potential exists by 2021, but not in 2020. As seen above, the analyst estimates underlying the current stock price as of Oct 2020, seem to expect minimal revenue in 2020, due to several lost partnerships and the fact that clinical trial results won’t be published until 4Q 2020-1H 2021. This is understandable in any biotech but is especially uncertain in Precision Bio due to what seems to be a lack of either progress or potential in their pipeline evidenced by the inadequate independent cash position and lack of/terminated partnerships.

By averaging estimates from analysts, we can determine the expected sentiment (-8% in 2020) and 30% in 2021 which shows the timeframe of potential catalysts and how long the investor should expect to hold their position. It should be noted that investors typically change positions based on clinical trial progress and not revenue, but revenue functions as a basic benchmark for sentiment and upside potential.

ChartData by YCharts

The data above may also be able to derive an interesting insight from the small deviation between FWD and current multiples of EV to Revenues. This may help to explain rather unexcited analyst expectations highlighting the low-potential return that the above valuations present. Max 19% upside in 2020, but max upside in 2021 at 120%. Overall, with few partnerships, the results of clinical trials will be the catalyst for new partnerships and for increasing stock price upside potential which may show an increased divergence to be watched between FWD multiples and current.

Upcoming Catalysts (1-12 months):

  • Updated interim clinical data from NHL cohorts in 4Q 2020
  • Updated interim clinical data from B-ALL cohorts in 4Q 2020

Conclusion

In conclusion, until Investors see progress on the clinical therapeutic pipeline, sentiment will remain low, but the above updates in 4Q2020-1H 2021 will be catalysts affecting both the likelihood of success and analyst projections. Precision Bio has promising modern therapeutics and is considering the long-term effects including manufacturing ease, amongst others, but has yet to show swift progress through the clinical trials.

The leadership seems less promising than investors hope, but a few science all-stars seem to be keeping Precision afloat. Cash is sufficient to keep moving forward, but investors should consider that without corporate partnerships, further significant capital raising will be required with potential downside dilution effects. All in all, analysts and the author agree that 2021 is the year of return for investors of Precision Biosciences with pipeline updates and potentially new promising partnerships replacing those lost in 2020.

In summary, the author projects Precision BioSciences, Inc. as a “buy” at a 2-year price target of $9.11 (+30% upside).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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