PluriStem Therapeutics Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter ended December 31, 2012; financial statements cover the three and six months ended December 31, 2012. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted.
Business context
PluriStem develops placenta-derived PLX cell therapy products for multiple disorders. It describes the cells as an “off-the-shelf” platform and is developing in-house capacity to manufacture clinical-grade cells. The company remains development-stage, with revenue primarily from its United Therapeutics agreement rather than product sales.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2012 | Three months ended Dec. 31, 2011 | Six months ended Dec. 31, 2012 | Six months ended Dec. 31, 2011 |
|---|---|---|---|---|
| Revenue | $0.195 | $0.231 | $0.390 | $0.385 |
| Gross profit | $0.189 | $0.224 | $0.378 | $0.373 |
| Net R&D expense, after grants and other participation | $3.653 | $1.067 | $6.351 | $3.911 |
| General and administrative expense | $1.420 | $1.275 | $3.101 | $2.912 |
| Operating loss | $(4.884) | $(2.118) | $(9.074) | $(6.450) |
| Net loss | $(4.490) | $(1.992) | $(8.485) | $(6.485) |
| Basic and diluted loss per share | $(0.08) | $(0.05) | $(0.16) | $(0.15) |
- Six-month operating cash use was $6.890 million, versus $0.174 million provided in the prior-year period. Investing activities used $14.895 million; financing activities provided $35.944 million.
- At December 31, 2012, cash and cash equivalents were $23.548 million, short-term bank deposits $32.143 million, and marketable securities $8.882 million. Current assets were $66.272 million and current liabilities $6.126 million, yielding reported working capital of $60.146 million.
- Total assets were $79.120 million, stockholders’ equity $69.044 million, and accumulated deficit $74.232 million. The balance sheet presents no interest-bearing borrowings.
Material changes and financing
- Net R&D expense rose 62% for the six-month period and 242% for the quarter, reflecting expanded internal research, clinical and preclinical activity, hiring, and lower grant participation in the quarter. The company said it had hired 42 employees since December 2011.
- Quarterly net loss more than doubled year over year; six-month net loss increased about 31%. The weighted-average share count also increased, mainly due to the September 2012 offering and exercises of warrants and options.
- The September 2012 public offering generated net proceeds of $34.106 million after offering costs. It included 9.2 million shares and warrants to purchase shares; the offering warrants become exercisable March 19, 2013. Additional warrants and options were exercised during the six months, producing $1.838 million in cash proceeds.
- A December 2012 sales agreement permits the company to sell up to $95 million of common stock through an agent; the company reported no sales under the agreement to date.
- Property and equipment increased to $10.026 million from $5.019 million, with spending also directed to construction of the new facility. In January 2013, the landlord agreed to contribute NIS 2.990 million (approximately $0.8 million) toward construction costs, to be recognized as a reduction of rent over the lease term.
Outlook, risks, and unusual items
- Management said existing cash was sufficient to fund operations for at least the next 12 months, while also noting that cash needs are expected to increase and additional funding may be needed. Planned funding sources include equity, licensing agreements, and grants.
- The company does not expect product-sale revenue in the next 12 months and said products likely will not be ready for sale for at least three years, if at all. Management expects near- and medium-term licensing revenue to be unlikely to exceed operating costs.
- All reported revenue came from the United Therapeutics agreement; the license fee is recognized straight-line over an estimated development period of approximately 6.5 years. Six-month revenue was nearly flat year over year, while quarterly revenue declined.
- OCS and other grant participation was $1.543 million for the six months. OCS grants carry royalties of 3%–5% on qualifying future sales until the grant amount plus interest is repaid; $0.012 million of royalties was paid in the period.
- Financial income was $0.589 million for the six months, compared with a $0.035 million expense a year earlier; management attributed the change to exchange-rate adjustments and hedging. Derivative contracts were recorded as a $0.204 million asset at December 31, 2012.
- The company reported accumulated operating losses and no assurance of achieving or sustaining profitability. Forward-looking plans, clinical development, manufacturing capacity, grant funding, and future financing are subject to risks and uncertainty. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the stated 12-month cash runway remains adequate as R&D, clinical, and facility costs rise, and how much cash and investment balances are available for operations.
- Whether and on what terms the company uses the $95 million at-the-market sales agreement, including resulting dilution.
- Progress and funding for clinical and preclinical programs, grant approvals and timing, and the assumptions behind the expected product-development timeline.
- Exercise and potential dilution from outstanding warrants, options, and restricted stock units, including the September 2012 offering warrants.
- Receipt and accounting treatment of the landlord’s facility contribution, and future obligations associated with OCS grants and the United Therapeutics agreement.