Gene And Immunotherapy Expansion Will Drive Durable Long Term Opportunity

Catalysts

About Precigen

Precigen is a biotechnology company focused on developing and commercializing gene and immunotherapies such as PAPZIMEOS for patients with high unmet medical need.

What are the underlying business or industry changes driving this perspective?

• Rapid uptake of PAPZIMEOS in a sizable and previously underserved adult RRP population, combined with strong physician enthusiasm and broad label coverage, supports a multi year ramp in product revenue as pent up demand converts into treated patients.
• Expanding indications, including the planned pediatric RRP trial and geographic expansion via the EMA marketing authorization application, create additional addressable markets that can extend the revenue growth curve and leverage existing commercial infrastructure.
• Favorable payer dynamics with fast growing commercial, Medicare, and Medicaid coverage, along with compelling durability data, may reduce access frictions and support stronger realized net pricing, potentially improving both top line and net margins.
• In house cGMP manufacturing for PAPZIMEOS drug substance and validated cold chain logistics provide strategic control over supply, which may improve gross margins over time and reduce operational risk as volumes scale.
• A potential transition to cash flow breakeven funded by current cash plus projected PAPZIMEOS revenues, alongside a simplified capital structure with preferred shares converted to common, could limit dilution risk and allow operating leverage to flow through to earnings as SG and A launch spending normalizes.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Precigen's revenue will grow by 262.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6750.1% today to 39.5% in 3 years time.
• Analysts expect earnings to reach $118.4 million (and earnings per share of $0.3) by about December 2028, up from $-425.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 38.3x on those 2028 earnings, up from -3.0x today. This future PE is greater than the current PE for the US Biotechs industry at 19.1x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• PAPZIMEOS currently relies on a single indication, recurrent respiratory papillomatosis in adults. If long-term real world data were to show less durable responses than clinical trials or safety signals emerging over time, physicians could revert to surgery-led management, reducing revenue and pressuring earnings growth.
• The company is investing heavily in commercial infrastructure and in-house cGMP manufacturing to support PAPZIMEOS. If uptake from the estimated 27,000 adult RRP patients and future pediatric or geographic expansions is slower than anticipated, fixed costs could remain high relative to sales, compressing net margins and delaying the move to cash flow breakeven.
• Although management highlights rapid progress in payer coverage across commercial, Medicare, and Medicaid plans, sustained pressure on specialty drug pricing or higher-than-anticipated gross-to-net discounts in the high teens to low twenties could cap effective pricing power, limiting top line growth and constraining future profit margins.
• Management expects current cash, a new credit facility, and projected PAPZIMEOS revenues to fund operations to cash flow breakeven by the end of 2026. However, any delay in patient pull-through from hubs, formulary approvals, or reimbursement could force additional financing, increasing share count and diluting earnings per share.
• While Precigen believes that PAPZIMEOS has raised the clinical bar and will be difficult to displace, advances in competing gene or immunotherapies for HPV-driven diseases or alternative treatment modalities could erode its standard-of-care positioning over the long term, pressuring both revenue growth and long-run operating margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $8.5 for Precigen based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $299.5 million, earnings will come to $118.4 million, and it would be trading on a PE ratio of 38.3x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $3.6, the analyst price target of $8.5 is 57.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.