Protalix BioTherapeutics, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Financial statements are unaudited; amounts below are U.S. dollars unless stated otherwise. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx plant-cell platform. Its lead investigational candidate is PRX-102 for Fabry disease; taliglucerase alfa is its commercial product.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $11.3 million | $21.6 million |
| Revenue from selling goods | $4.5 million | $5.0 million |
| License and R&D services revenue | $6.8 million | $16.6 million |
| Cost of goods sold | $4.8 million | $3.4 million |
| R&D expense, net | $7.1 million | $10.3 million |
| SG&A expense | $3.1 million | $3.2 million |
| Operating income (loss) | $(3.7) million | $4.7 million |
| Net income (loss) | $(5.5) million | $1.7 million |
| Basic and diluted EPS | $(0.14) | $0.10 |
| Operating cash flow | $(9.8) million | $(7.1) million |
Revenue fell about 48% year over year. Goods revenue declined about 10%; lower Brazil sales were partly offset by higher Pfizer sales. License and R&D revenue declined about 59%, primarily because Q1 2020 included a $6.7 million revenue adjustment tied to revised estimated Chiesi development costs and revenue from clinical-trial progress. Cost of goods sold rose 41%, mainly from higher manufacturing costs. R&D expense fell 31%, largely following completion of two PRX-102 Phase III trials and lower BALANCE-study costs. Net financial expense was $1.8 million, down from $3.0 million.
Total revenue less cost of goods sold was $6.6 million, or approximately 58% of revenue; however, product sales alone were below cost of goods sold by approximately $0.3 million. The filing does not present a separate gross-margin measure.
At March 31, cash and cash equivalents were $19.8 million and short-term bank deposits were $50.6 million, for combined cash and deposits of $70.4 million. Current assets were $90.7 million and current liabilities were $80.9 million; working capital was approximately $9.8 million and the current ratio approximately 1.12. Total liabilities were $88.3 million. The company reported $57.9 million principal outstanding on its 7.50% secured convertible notes, due November 15, 2021 unless refinanced, restructured or converted; the balance-sheet carrying amount was $55.4 million. The notes are secured by a lien on company assets and require a minimum cash balance of $7.5 million.
Net cash used in investing activities was $30.7 million, primarily reflecting purchases of bank deposits. Financing activities provided $42.1 million, including net proceeds from the February public offering and ATM sales, partly offset by repayment of the Pfizer promissory note. Cash and equivalents increased $1.6 million during the quarter. The company issued 8.75 million shares in a public offering for approximately $40.2 million gross and sold 1.87 million ATM shares for approximately $8.8 million gross. Shares outstanding were 45.38 million at March 31, versus 34.77 million at December 31, 2020.
Material developments, outlook and risks
- PRX-102 FDA review: On April 28, 2021, after quarter-end, the FDA issued a Complete Response Letter for the BLA. The letter raised no concerns about the submitted safety or efficacy data, but FDA said it needed to inspect Protalix’s Carmiel manufacturing facility before approval. The agency also identified remaining matters at the European fill-and-finish facility and noted that Fabrazyme’s conversion to full approval must be addressed if Protalix seeks accelerated approval on resubmission. Protalix planned to request a Type-A meeting; timing and the required resubmission pathway were uncertain.
- Clinical progress: The company and Chiesi announced positive topline results from the PRX-102 BRIGHT study in February 2021. The filing describes stable clinical presentation on a four-week dosing regimen. Interim BALANCE data were expected in the first half of 2021; this was an expectation, not a reported financial forecast.
- Chiesi agreement: On May 13, 2021, after quarter-end, the parties signed a binding term sheet for a $10 million payment before the end of Q2 2021 in exchange for reducing a longer-term ex-U.S. regulatory milestone by $25 million. Other regulatory and commercial milestones remained unchanged; manufacturing matters were also to be negotiated.
- SarcoMed license: In February 2021, Protalix licensed PRX-110 for respiratory indications worldwide. SarcoMed is responsible for candidate selection and clinical development. Protalix is entitled to an initial $3.5 million payment subject to conditions, additional milestones and tiered royalties; the parties also planned to negotiate supply agreements.
- Funding outlook: Management said available cash and deposits were expected to fund capital needs for at least 12 months from issuance of the financial statements. That assessment coexists with the $57.9 million note principal due in November 2021 and significant ongoing R&D needs. The company may need further capital, and additional equity financing could dilute shareholders. As of the filing, it could raise a further $16.2 million under its ATM program.
- Other risks and contingencies: Key risks include uncertainty over PRX-102 approval, inspection timing and possible additional studies; debt repayment and refinancing; dependence on Chiesi, Pfizer and other third parties; manufacturing and supply execution; lower-than-expected purchases under the Brazil agreement; and COVID-19-related disruption. Management reported that trials had not been materially adversely affected by COVID-19 to date. No material legal proceedings or off-balance-sheet arrangements were reported. Disclosure controls were assessed as effective, with no material internal-control changes during the quarter.
No formal company-wide revenue, earnings or cash-flow guidance is provided in the filing. Management expects R&D to remain its primary expense as development advances and anticipates additional costs associated with addressing the FDA’s CRL; the amount and timing were not clear.
Most important facts for investors to verify
- Whether and when FDA inspections can be completed, what actions FDA requires at either facility, and the regulatory path and timing for a PRX-102 resubmission.
- Whether the promised $10 million Chiesi payment was received on schedule and how the $25 million milestone reduction affects future contingent payments.
- How the company planned to repay, refinance, restructure or convert the $57.9 million principal due November 15, 2021, while maintaining the $7.5 million minimum-cash covenant.
- Subsequent cash burn, ATM usage and potential dilution, given Q1 operating cash use of $9.8 million and the increase in shares outstanding.
- Progress and final results from the BALANCE study, and whether BRIGHT topline findings are confirmed in complete analyses and support regulatory filings.
- Brazil purchase and supply developments, and whether the SarcoMed initial payment conditions and supply-agreement negotiations were satisfied.