Protalix Biotherapeutics, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; quarterly figures below are unaudited. Unless noted, amounts are U.S. dollars.
Business context
Protalix develops and commercializes recombinant therapeutic proteins using its plant-cell ProCellEx platform. Its principal development focus is PRX-102 (pegunigalsidase alfa) for Fabry disease, in Phase III trials. Other candidates include OPRX-106, an oral anti-TNF candidate for ulcerative colitis, and PRX-110 (alidornase alfa) for cystic fibrosis; both had completed Phase IIa studies. Taliglucerase alfa is approved for Gaucher disease: Pfizer commercializes it outside Brazil, while Protalix retains Brazilian rights.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Goods revenue | $9.0 million | $19.2 million |
| License and R&D-services revenue | $25.3 million | $1.8 million |
| Total revenue | $34.2 million | $21.1 million |
| Cost of goods sold | $9.3 million | $15.2 million |
| Net R&D expense, after grants | $33.3 million | $28.8 million |
| Operating loss | $19.3 million | $34.5 million |
| Net loss | $26.5 million | $83.4 million |
| Operating cash used | $7.7 million | $10.0 million |
| Cash and cash equivalents at year-end | $37.8 million | $51.2 million |
Total revenue rose about 62%, largely because of Chiesi license and development-service revenue, while goods revenue fell about 53%. The 2018 license revenue included a $6.2 million cumulative catch-up adjustment related to the U.S. Chiesi agreement. Net loss narrowed substantially; 2017 included a $38.1 million non-cash charge from remeasurement of the convertible-note embedded derivative. The filing reports no operating margin guidance; operating loss was $19.3 million on $34.2 million revenue.
At December 31, 2018, current assets were $53.0 million and current liabilities $25.4 million. Total liabilities were $114.0 million, compared with assets of $61.1 million and a stockholders’ deficit of $52.9 million. The company had $57.9 million principal amount of 7.5% secured convertible notes outstanding, due November 2021; the notes are secured by material assets, including intellectual property. The 2018 notes were paid in full at maturity. Cash declined $13.4 million during 2018. Investing cash use was $0.6 million and financing cash use was $4.8 million.
Management stated that existing cash was expected to fund planned operating needs for at least 12 months from approval of the financial statements, while cautioning that assumptions could change and additional financing might be needed. The filing does not provide a specific profitability or revenue forecast.
Material changes, outlook and risks
- Chiesi received exclusive commercialization rights to PRX-102 in the United States in July 2018, extending its earlier ex-U.S. arrangement. Protalix received a $25 million U.S. upfront payment and may receive development reimbursements and regulatory and commercial milestones; these contingent amounts are not guaranteed. Protalix is responsible for manufacturing supply under the agreements.
- PRX-102’s Phase III program comprised BALANCE, BRIDGE and BRIGHT. BRIDGE enrollment was completed at 22 patients; preliminary results from 16 patients reported an improvement in eGFR slope after switching from Replagal. These are preliminary clinical findings, not proof of approval or commercial success. The filing gives inconsistent BALANCE enrollment figures at year-end—approximately 70% in one passage and approximately 90% in another.
- Brazilian government purchases of alfataliglicerase have been below contractual milestones. Protalix retained the right to terminate its Fiocruz agreement but continued supplying the product and was discussing possible remedies. The 2017 Brazilian purchase order was approximately $24.3 million; reported Brazilian sales were $3.7 million in 2018.
- Research and development is expected to remain the primary expense and to increase as clinical development advances, particularly for PRX-102. Management identified clinical execution, regulatory approval, financing, manufacturing and partner performance as key uncertainties.
- Financial reporting control issue: Management and the auditor concluded that internal control over financial reporting was ineffective at year-end due to a material weakness in accounting for complex revenue contracts. The company announced restatements of its first three 2018 quarterly reports for revenue-recognition errors and was implementing remediation. The auditor’s opinion on the financial statements was unmodified, but its opinion on internal control identified the material weakness. The filing also revised 2017 annual information for an error it deemed immaterial.
- Other significant risks include continuing clinical-trial and regulatory uncertainty, dependence on Chiesi and Pfizer, debt service and potential dilution from note conversions, collateral foreclosure risk, competitive therapies, reliance on suppliers and contract manufacturers, and operational and currency risks in Israel. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Selected fourth-quarter figures
Unaudited fourth-quarter 2018 revenue was $1.8 million from goods and $8.6 million from license agreements; operating loss was $3.7 million and net loss was $5.4 million. The first three 2018 quarterly figures in the filing are marked as restated.
Important facts for investors to verify
- Review the amended 2018 quarterly filings and confirm the effects of revenue-recognition corrections, controls remediation and any subsequent disclosures.
- Reconcile the conflicting year-end BALANCE enrollment percentages and confirm trial enrollment, timelines and results from company and regulatory updates.
- Assess cash runway against clinical spending, contractual obligations and the $57.9 million secured notes, including conversion, maturity and covenant terms.
- Confirm Fiocruz’s purchase performance and any resolution, termination or change to the Brazilian supply arrangement.
- Distinguish recognized Chiesi revenue and received payments from contingent future reimbursements and milestone opportunities; verify development and supply obligations.