PluriStem Therapeutics Inc. — Form 10-Q
Reporting period: Quarter and six months ended December 31, 2011 (the company’s fiscal second quarter). Unaudited consolidated figures are in U.S. dollars, generally in thousands, except per-share data. PluriStem develops placenta-derived cell therapies and remains a development-stage business; it ceased using development-stage reporting in July 2011.
Financial performance and position
- Revenue: $231 for the quarter and $385 for the six months, versus none in the comparable 2010 periods. Revenue came from straight-line recognition of the United Therapeutics license fee; it is not product-sales revenue.
- Loss: Quarterly net loss was $1,992, compared with $2,821; six-month net loss was $6,485, compared with $4,510. Basic and diluted loss per share was $0.05 and $0.15, respectively, versus $0.11 and $0.20. Six-month weighted-average shares rose to 43.2 million from 23.0 million.
- Operating costs: Six-month net R&D expense increased 52% to $3,923; quarterly net R&D expense decreased 32% to $1,074. Six-month general and administrative expense rose 45% to $2,912; quarterly expense increased 2% to $1,275. Management cited increased in-house and clinical-development activity, hiring, grant timing, stock compensation, and United-agreement-related costs.
- Cash flow: Operations provided $174 in the six months, versus using $2,219 in the prior-year period. The current-period figure reflected the $7,000 United payment and increases in deferred revenue and advance payments, and should not be read as recurring operating cash generation. Investing used $36,731, primarily to place funds in deposits and marketable securities; financing provided $400, mainly from warrant and option exercises.
- Liquidity: Cash and equivalents were $6,672 at December 31, down from $42,829 at June 30. Short-term deposits were $30,491 and marketable securities $4,352. Current assets were $43,843, current liabilities $4,976, and working capital $38,867. Management said available funds were expected to support operations until approximately the end of fiscal 2014.
- Balance sheet and capital: Total assets were $49,642 and stockholders’ equity $40,352; accumulated deficit was $57,438. Liabilities included $4,615 of deferred revenue and a $1,926 advance payment. No borrowing balance is listed on the balance sheet. Shares outstanding were 44.1 million at December 31 and 44.3 million on February 4, 2012.
Material changes and business developments
- The United Therapeutics exclusive worldwide PAH license became effective in August 2011. PluriStem received $7,000, comprising a $5,000 nonrefundable license fee and a $2,000 refundable development advance. The $5,000 fee is recognized over an estimated 5.5-year development period; the $2,000 advance is recorded as a liability and applied against eligible development expenses. The agreement also provides for up to $37,500 in regulatory milestones, potential manufacturing-cost reimbursements, development-cost reimbursement, and post-commercialization royalties and product supply.
- In October 2011, PluriStem contracted for a new GMP manufacturing facility, targeted for completion in fourth-quarter 2012. The stated construction consideration is NIS 22.8 million (approximately $6.25 million), plus VAT; part may be paid in up to 2 million shares. The company issued the contractor 500,000 shares as an advance payment. The lease was expected to begin in January 2012.
- In January 2012, the Israeli Office of the Chief Scientist approved a NIS 9 million (approximately $2.4 million) grant for R&D expenses covering March 2011 through February 2012. PluriStem applied for a further grant; approval and amount were uncertain.
Outlook, risks, and unusual items
- Management said it did not expect product-sales revenue in the next 12 months and that products likely would not be ready for sale for at least three years, if ever. It expects near- and medium-term revenue, if any, mainly from licensing and similar arrangements, and said additional funding may be needed. Funding plans include existing resources, licensing, grants, and possible securities issuances.
- Key execution risks include clinical safety and efficacy, development and regulatory milestones, successful construction and operation of in-house manufacturing capacity, future grant availability, and access to additional capital. The company reported ongoing operating losses and no assurance of achieving or sustaining profitability.
- PluriStem reported Phase I CLI follow-up data for 27 patients: a 12-month amputation-free survival rate of 85.2%, compared with 66.8% from historical control data. The trials were open-label and had no control groups; this comparison is not a randomized controlled result.
- The company had $1,157 pledged to secure hedging transactions, a credit line, and bank guarantees, and issued additional guarantees for the facility and equipment rental. An unrealized marketable-securities loss of $134 was recorded in other comprehensive loss. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether the United Therapeutics development program meets milestones and how license revenue, expense reimbursements, and potential future payments are recognized.
- Whether the facility is completed on schedule and within its stated cost, including the potential equity-payment option and related dilution.
- Whether the approved grant is received and whether further OCS funding is approved; grant timing affected reported R&D costs and cash flows.
- The company’s actual cash runway and funding needs, considering that reported operating cash flow benefited from upfront and deferred payments and management expects no near-term product-sales revenue.
- Clinical evidence supporting PLX-PAD and other products, especially the limitations of comparing uncontrolled Phase I results with historical data.
- Potential dilution: the filing lists 18.6 million outstanding options and warrants and approximately 3.0 million unvested restricted stock units at December 31, 2011.