Our Stock of the Week is Precigen (PGEN), which makes PAPZIMEOS, a gene therapy approved a year ago as the first treatment for recurrent respiratory papillomatosis. HPV causes growths to keep returning in the airway, and until last August the only option was surgery, often repeated for years. The therapy treats the cause rather than cutting out the growths over and over.
Precigen had one of the best quarters of any company I follow. The stock closed at a 52-week high on August 10 and has given back about 15% since. Nothing in the business changed over those sessions. No warning, no offering, no downgrade, and biotech as a group went up while this one went down. That is exactly the sort of setup I look to trade.
Second quarter revenue came in at $55 million against a consensus near $28 million. The company earned $20.1 million, five cents a share diluted, where analysts looked for a small loss. Management had guided to cash-flow breakeven by year end and arrived at GAAP profitability roughly two quarters early. The chief financial officer pointed out on the call that turning profitable before the first anniversary of an FDA approval does not happen often.
Management declined to put a number on third quarter revenue. They did commit to a gross margin settling into the high eighties or low nineties once pre-launch inventory clears, with insurance coverage now reaching essentially every covered life in the country.
Almost nobody covers it
Four sell-side firms follow PGEN which has a $2 billion market capitalization. H.C. Wainwright raised its target to $18 from $14 the day after the report and named it a top pick for the second half. The other three have not updated their models since.
I am watching JPMorgan in particular. It has sat at neutral since last August on concerns about capital needs and dilution, and Precigen has since funded its own launch and posted a profit. On the earnings call, the analyst asked about demand and the pipeline and never raised cash as an issue.
Why it pulled back
A legacy holder has been selling. Merck KGaA, through its Ares Trading arm, filed on August 7 showing its stake had dropped below 5%. The stock closed at its high that day and has declined every session since. Below five percent, the disclosure requirement ends, so the rest of that position, roughly nine percent of the float, can be sold without anyone seeing it. I view that as a holder unwinding a stake it has carried for years, not a statement about value.
There have been insider sales, but they are 10b5-1 transactions, scheduled in advance under a plan rather than decided in the moment. The chief financial officer’s sales came in June and July, before the quarter was reported. The chief operating officer sold about $450,000 worth in early August. The chief executive still holds more than four million shares. Nobody has made discretionary sales into the high.
The competitor and the October date
Inovio Pharmaceuticals (INO) is the only competitor close to market, with an FDA decision due October 30 on INO-3107, a DNA-based immunotherapy for the same disease. Inovio had a good week. It cleared two of the last procedural hurdles before a decision and has about $55 million and a contract sales force lined up. Jefferies upgraded the stock to buy on August 13 and took its target to $3 from $1.80. Precigen fell more than five percent that session.
I think the market is overestimating the near-term impact of competition. Approval is not enough to launch a product. Precigen was approved last August and waited eight months, until April 1, for its permanent billing code. Hospitals told the company they had been holding back for that code and only started coming on board in the second quarter. An Inovio approval on October 30 puts that product on a miscellaneous code through most of next year, while Precigen bills under a permanent one at institutions already trained on the workflow.
Then there is the depth of the data. Precigen reports 83% of patients in ongoing complete response beyond three years, some past four years with no surgery at all. Inovio’s published follow-up covers 28 patients and shows half with no surgeries in the second year. Not a fair comparison across different trials, but what an ear, nose and throat surgeon is buying is no more surgery, and Precigen is delivering that. Inovio also has to raise money again before it can field a sales force.
What I am doing
I bought some on Friday and have plenty of room to add, which I plan to do on weakness rather than strength. Two things could hand me that weakness. The October 30 decision can move this either way, and the legacy holder may keep dumping stock. Given the second quarter numbers and the head start on billing and coverage, drops of that kind are where I want to be adding rather than trimming.
The stock sits about 15% off its high with support at the June 29 high of $6.04. Under that, the 50-day simple moving average comes in near $5.50. Those are the areas I am looking at. I am not going to chase strength at the open on Monday.
Long: Precigen (PGEN)
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This post is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this post. Do not buy, sell, or trade the stocks mentioned herein. We WILL actively trade this stock differently than discussed herein. We will sell into strength and buy or sell at any time for any reason. We will actively trade into any unusual activity. At the time of this post, principals, employees, and affiliates of Shark Investing, Inc. and/or principals, clients, employees, and affiliates of Hammerhead Financial Strategies, LLC, directly or indirectly, controlled investment and/or trading accounts containing positions in PGEN at the time this was published. To accommodate the objectives of these investing and/or trading accounts, the trading in these shares will be contrary to and/or inconsistent with the information contained in this posting.
