Pluristem Therapeutics Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2014; filed May 8, 2014. The request metadata says “2013 Q3,” but the filing itself reports the quarter ended March 31, 2014. Amounts below are U.S. dollars in thousands, except per-share data.
Business context
Pluristem develops placenta-derived PLX cell-therapy products and had no meaningful product sales. Its reported revenue came from the United Therapeutics license agreement. The company reported continuing operating losses and expects them to persist as it funds research and development, clinical programs, and manufacturing capabilities.
Financial results and liquidity
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | 2014: $95; 2013: $194 | 2014: $285; 2013: $584 |
| Gross profit | 2014: $92; 2013: $188 | 2014: $276; 2013: $566 |
| Net loss | 2014: $(9,276); 2013: $(5,680) | 2014: $(20,736); 2013: $(14,165) |
| Basic and diluted loss per share | 2014: $(0.14); 2013: $(0.10) | 2014: $(0.33); 2013: $(0.26) |
| Net cash used in operating activities | Not provided for the quarter | 2014: $(13,765); 2013: $(11,874) |
For the nine-month period, net R&D expense was $15,078, up from $11,313; general and administrative expense was $6,335, up from $4,260. Gross profit was small relative to operating expenses; the filing does not present a gross-margin percentage.
At March 31, 2014, cash and cash equivalents were $3,638, short-term bank deposits were $26,130, restricted cash and short-term deposits were $3,716, and marketable securities were $30,349. Current assets totaled $64,709 versus current liabilities of $6,442, for reported working capital of $58,267. Total assets were $77,388 and stockholders’ equity was $65,958. No conventional borrowings are listed on the balance sheet; liabilities primarily comprise payables, deferred revenue, severance, and other items.
Cash and cash equivalents fell from $9,007 at June 30, 2013 to $3,638 at March 31, 2014. Nine-month investing cash outflow was $3,624, while financing provided $12,020, including $10,149 net proceeds from ATM share sales and $1,871 from option and warrant exercises. The company also issued 2.5 million shares to CHA in an equity exchange valued at approximately $10,414; this was noncash.
Material changes and notable items
- Nine-month revenue fell 51% year over year, which management attributed to extending the estimated United Therapeutics development period from 6.5 to 11.5 years, spreading license-fee recognition over a longer period.
- Nine-month net loss increased by $6,571 year over year. Management cited higher in-house R&D activity, staffing, depreciation, and stock-based compensation; higher OCS participation partly offset R&D costs.
- Common shares outstanding increased to 67,849,535 at March 31, 2014 from 59,196,617 at June 30, 2013, including ATM issuance, the CHA share exchange, and warrant and option exercises.
- Marketable securities included the CHA investment, with reported fair value of approximately $12,208 and unrealized gains of $1,530. The company used an $11 million notional forward contract to hedge its Korean-won currency exposure.
Outlook, risks, and contingencies
- Management stated it believed available cash and liquidity were sufficient to fund operations for at least 12 months, while also warning that cash needs would rise and additional funding might be needed. Potential sources include equity issuance, licensing arrangements, grants, and sales of marketable securities; $84.6 million remained available under the ATM agreement at March 31, 2014.
- The company did not expect product-sales revenue in the next 12 months and said products likely would not be ready for sale for at least three years, if at all. Management expected near- and medium-term licensing revenue to be unlikely to exceed operating costs.
- The FDA placed the U.S. Phase II intermittent-claudication study on clinical hold in June 2013 following a serious allergic reaction requiring hospitalization; the hold was lifted in September 2013.
- In May 2014, the Israeli Office of the Chief Scientist approved a grant of approximately $4,187 for 2014 R&D expenses, subject to grant terms, including royalty repayment provisions and an additional condition relating to a possible clinical trial involving pregnant women.
- OCS grants carried contingent royalties of 3%–4% on qualifying product sales and related revenue until the grants, up to $14,106 at March 31, 2014, are repaid with applicable interest. No payment is required absent qualifying revenue.
- Other risks include clinical and regulatory uncertainty, continued losses, reliance on external financing and partners, and market-price and foreign-exchange exposure. The filing states there were no off-balance-sheet arrangements; management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the reporting period: the filing is for the quarter ended March 31, 2014, notwithstanding the request metadata’s “2013 Q3.”
- Assess cash runway using the full portfolio of cash, deposits, restricted funds, and marketable securities, and compare it with the stated 12-month funding estimate and ongoing operating cash use.
- Track clinical progress and regulatory status, including follow-up to the prior FDA clinical hold and the CHA-sponsored South Korean trial.
- Review potential dilution from further ATM sales, warrants, options, and equity compensation, and confirm the remaining ATM capacity.
- Monitor the value and liquidity of the CHA investment, related currency hedges, and grant conditions and contingent OCS royalties.