Protalix Biotherapeutics, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. Amounts are in U.S. dollars unless noted. This annual filing includes unaudited quarterly data, including the fourth quarter.
Business context
Protalix is a biopharmaceutical company developing and manufacturing recombinant therapeutic proteins using its plant cell-based ProCellEx platform. Its marketed product, Elelyso (taliglucerase alfa), treats Gaucher disease. The principal development asset is PRX-102 (pegunigalsidase alfa) for Fabry disease; other candidates include oral tulinercept (OPRX-106) for inflammatory bowel disease, alidornase alfa (PRX-110) and preclinical PRX-115 for gout.
Pfizer holds Elelyso commercialization rights outside Brazil, while Protalix retains Brazilian rights. Chiesi has exclusive U.S. and ex-U.S. licenses for PRX-102; Protalix is responsible for development and, subject to the agreements, manufacturing and supply.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $54.7 million | $34.2 million |
| Revenue from goods | $15.9 million | $9.0 million |
| License and R&D services revenue | $38.8 million | $25.3 million |
| Cost of goods sold | $10.9 million | $9.3 million |
| Net R&D expense | $44.6 million | $33.3 million |
| SG&A expense | $9.9 million | $10.9 million |
| Operating loss | $10.7 million | $19.3 million |
| Net loss | $18.3 million | $26.5 million |
| Net loss per share | $1.23 | $1.80 |
| Cash and cash equivalents at year-end | $17.8 million | $37.8 million |
| Total assets | $45.4 million | $61.1 million |
| Total liabilities | $115.7 million | $114.0 million |
| Stockholders’ capital deficiency | $70.3 million | $52.9 million |
Net cash used in operating activities was $19.4 million, versus $7.7 million in 2018; investing activities used $0.9 million. Year-end current assets were $32.5 million and current liabilities were $40.2 million, a $7.7 million working-capital deficit. No cash-flow margin or standalone operating cash-flow margin is stated in the filing.
At year-end, $57.9 million principal amount of 7.50% secured convertible notes was outstanding, due November 2021; the company also had a $4.3 million Pfizer note due November 2020. The 2021 Notes require a minimum cash balance of $7.5 million and are secured by substantially all material assets, including intellectual property.
Material changes and unusual items
- Revenue increased 60% to $54.7 million. Goods revenue rose mainly on higher Brazilian sales and Pfizer supply; license and R&D revenue increased with Chiesi studies and recognition of an anticipated milestone.
- R&D expense rose 34%, primarily from $9.1 million of higher clinical-trial costs and lower Israeli government grants. Net grants deducted from R&D expense fell to $77,000 from $2.2 million.
- The 2019 net loss narrowed by $8.2 million from 2018, while cash declined by $20.0 million. 2018 had a $6.2 million cumulative catch-up revenue adjustment related to the Chiesi U.S. agreement; 2017 results included a $38.1 million charge from remeasurement of a convertible-note embedded derivative.
- In fourth-quarter 2019, revenue was $17.8 million, operating profit $2.2 million and net profit $291,000, compared with a $5.4 million net loss in fourth-quarter 2018. The filing does not attribute all of the quarter’s profitability to recurring operations; it reports $4.5 million of fourth-quarter revenue associated with a $10 million future milestone payment.
- The company adopted the lease accounting standard in 2019 and recognized operating lease right-of-use assets and liabilities. This accounting change did not represent equivalent new cash funding.
Outlook, commentary and risks
- All three PRX-102 Phase III trials—BALANCE, BRIDGE and BRIGHT—were fully enrolled. Management anticipated a BLA submission under the FDA Accelerated Approval pathway, with the filing’s financial-statement note targeting April 2020. The FDA could request additional data or decline to approve; BALANCE was expected to serve as the confirmatory trial.
- Management anticipated final BRIDGE results in the second quarter of 2020, further BRIGHT data in the fourth quarter of 2020 and BALANCE data in the first quarter of 2021. These are forward-looking expectations, not reported outcomes.
- Management said available funds were expected to cover capital needs for at least 12 months, but also disclosed substantial doubt about the company’s ability to continue as a going concern absent refinancing or restructuring. Management was evaluating financing alternatives; no certainty of obtaining funding was stated.
- On March 12, 2020, after year-end, the company agreed to a private placement of approximately 17.6 million shares at $2.485 per share for approximately $43.7 million gross proceeds. Each share was accompanied by a warrant to buy one share at $2.36. The transaction could provide liquidity but would be dilutive; the filing describes an agreement to issue and sell securities.
- NYSE American had issued a deficiency letter in August 2019 concerning stockholders’ equity and losses; failure to regain compliance could lead to delisting and potentially affect the debt. A December 2019 1-for-10 reverse split and reduction in authorized common shares were part of the compliance response.
- Fiocruz’s purchases under the Brazil supply and technology-transfer agreement remained significantly below agreed milestones. Protalix continued supplying the product and was discussing compliance options; the agreement could be terminated.
- Additional risks include dependence on PRX-102 and partners, clinical and regulatory uncertainty, manufacturing and supplier concentration, competition, reimbursement and pricing pressure, secured debt and covenant risks, potential equity dilution, and political, military and currency risks in Israel.
Most important facts for investors to verify
- Whether the March 2020 private placement closed, the net proceeds received, warrant exercises and resulting share dilution.
- Actual cash runway and liquidity after the financing, the status of refinancing or restructuring, and compliance with the $7.5 million minimum-cash covenant.
- PRX-102 BLA submission and FDA review status, trial results, and any additional data or confirmatory-study requirements.
- Fiocruz purchase performance and any resolution, amendment or termination of the Brazil agreement.
- NYSE American listing compliance and any effects on the notes or access to capital.
- Chiesi milestone revenue timing and collection: the filing recognized $4.5 million against a $10 million future milestone expected to be received in early 2021.
The auditor gave an unqualified opinion on the consolidated financial statements and reported effective internal control over financial reporting as of December 31, 2019.