Protalix BioTherapeutics, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; unaudited. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx platform. Its lead candidate, PRX-102, is in Phase III development for Fabry disease. Unless indicated otherwise, financial amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue from goods | $3.4 million | $2.0 million | $7.0 million | $6.6 million |
| License and R&D services revenue | $8.8 million | $2.8 million | $15.7 million | $5.0 million |
| Total revenue | $12.2 million | $4.8 million | $22.7 million | $11.6 million |
| R&D expense, net | $13.3 million | $7.2 million | $25.0 million | $13.7 million |
| Operating loss | $5.8 million | $6.7 million | $11.4 million | $11.9 million |
| Net loss | $7.7 million | $8.5 million | $15.0 million | $15.7 million |
| Net loss per share | $0.05 | $0.06 | $0.10 | $0.11 |
- Q2 goods revenue rose 70%, mainly on higher Brazil sales; license and R&D revenue increased primarily because of the Chiesi U.S. agreement, entered into in July 2018. Six-month license and R&D revenue increased 214% year over year.
- R&D costs rose substantially, driven mainly by clinical-trial costs: $5.4 million higher in Q2 and $8.5 million higher in the first half. Management expects R&D to remain its primary expense.
- Financial expense, net was $1.9 million in Q2 and $3.6 million for the first half, primarily reflecting convertible-note interest. The filing does not provide a clear consolidated gross-margin measure.
- At June 30, cash and cash equivalents were $25.1 million, down from $37.8 million at year-end 2018. Current assets were $41.6 million and current liabilities $26.0 million. First-half operating cash use was $12.4 million; investing cash use was $0.5 million; there was no financing cash flow. Cash declined $12.7 million during the half.
- Total liabilities were $122.7 million, versus $114.0 million at December 31, 2018; capital deficiency was $67.5 million. Convertible notes had a $49.4 million balance-sheet carrying value; principal outstanding was $57.9 million. The secured 7.50% notes are due 2021 and require at least $7.5 million of cash. The filing also cites a $4.3 million Pfizer note payable due November 2020.
Material changes, outlook, and risks
- Management plans to submit a PRX-102 biologics license application to the FDA through the Accelerated Approval pathway in Q1 2020, based on completed Phase I/II data and the ongoing Phase III BRIDGE trial. FDA acceptance and approval are uncertain and additional data or conditions may be required.
- The filing states that current resources may not support planned development and spending for the next 12 months without refinancing or restructuring. Management raised substantial doubt about the company’s ability to continue as a going concern and was evaluating financing and restructuring alternatives; there was no assurance these would succeed. Failure to secure funding could require curtailing or ceasing operations.
- Chiesi agreements provide for development-cost reimbursements and potential regulatory and commercial milestones, but these are conditional. The company recognizes license and R&D revenue under those agreements; the contracts liability was $42.5 million at June 30, 2019, and unsatisfied performance obligations were $57.5 million.
- Brazil purchases of alfataliglicerase by Fiocruz have been below certain contractual milestones, giving Protalix a termination right; it continued supplying the product at the filing date. The company also remains responsible for supplying drug substance to Pfizer under the Elelyso agreement, with potential penalties for failure to meet supply commitments.
- Protalix adopted lease accounting in 2019, recognizing operating lease right-of-use assets of $5.9 million and lease liabilities. Management reported disclosure controls effective and the previously identified material weakness in accounting for complex revenue contracts remediated in Q2 2019. No material legal proceedings or off-balance-sheet arrangements were reported.
Investor verification priorities
- Whether Protalix can complete a refinancing or restructuring in time to fund operations, satisfy debt terms, and maintain the $7.5 million minimum-cash requirement.
- Whether the FDA accepts the planned PRX-102 accelerated-approval submission and whether the Phase III data and timing support the Q1 2020 target.
- The sustainability and cash-conversion implications of Chiesi-related revenue, including development reimbursements, remaining performance obligations, and any future milestone payments.
- Fiocruz’s purchase performance and the status of Brazil commercialization, as well as Protalix’s ability to fulfill Pfizer supply obligations.
- Convertible-note principal, maturity and conversion terms, collateral and covenant restrictions, and the separate Pfizer note payable.