Protalix BioTherapeutics, Inc. — Q1 2015 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are against December 31, 2014. Financial amounts are in U.S. dollars, in thousands, except per-share data. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx platform. Its marketed product is taliglucerase alfa (Elelyso/Uplyso) for Gaucher disease.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $4,392 | $6,696 |
| Share of collaboration agreement | $705 | $687 |
| Gross profit | $2,697 | $3,310 |
| Net R&D expense | $5,627 | $6,067 |
| Selling, general and administrative expense | $1,913 | $3,711 |
| Operating loss | $(4,843) | $(6,468) |
| Net financial expense | $(1,129) | $(877) |
| Net loss | $(5,972) | $(7,345) |
| Net loss per share, basic and diluted | $0.06 | $0.08 |
| Net cash used in operating activities | $(6,421) | $(8,340) |
Gross profit was approximately 53% of revenue plus collaboration income in Q1 2015, versus approximately 45% in Q1 2014. The filing reports no separate operating-margin measure.
Liquidity, debt, and cash flow
- Cash and cash equivalents were $47,958 at March 31, down from $54,767 at year-end. Cash declined by $6,809 during the quarter, including a $289 adverse foreign-exchange effect.
- Current assets were $59,584 and current liabilities were $26,549, giving a current ratio of approximately 2.2.
- Convertible notes had a carrying amount of $67,566; their disclosed fair value was approximately $52.8 million. The notes bear 4.5% interest and are due in 2018. Interest paid in the quarter was $1,553.
- Investing cash outflow was $99; there was no financing cash flow in Q1 2015. Total liabilities were $133,202, compared with total assets of $72,048; capital deficiency was $61,154.
- Management said existing cash was expected to fund planned activities and capital needs for at least 12 months, while cautioning that assumptions could change and additional funding might be needed sooner. The company had no committed future external funding.
Changes versus Q1 2014
- Revenue fell $2.3 million, or 34%, mainly due to lower Brazil product sales ($1.8 million) and lower product deliveries to Pfizer at cost ($597,000), partly offset by higher Israel sales ($227,000). Revenue includes quarterly amortization of prior upfront and milestone payments.
- Cost of revenue decreased 41% to $2.4 million, including a $690,000 smaller inventory write-off than in the prior-year quarter. The company recorded a $130,000 inventory write-down in Q1 2015.
- Net R&D expense fell 7%, reflecting lower salary costs, partly offset by lower Pfizer-related expense reimbursements. SG&A fell 48%, primarily due to lower salaries and sales and marketing costs.
- Operating and net losses narrowed, but net financial expense increased from $877,000 to $1.1 million. Operating cash use also declined year over year.
Business outlook, risks, and notable items
- Taliglucerase alfa was marketed by Pfizer in the United States and by Protalix in Israel and Brazil. Protalix recorded approximately $1.7 million of Q1 2015 revenue from sales to Brazil’s Fiocruz, a Brazilian Ministry of Health arm. Under the Brazil agreement, Fiocruz was required to purchase an additional approximately $30 million of Uplyso by July 31, 2015; failure would give Protalix the right to terminate the agreement and recover transferred technology rights. The filing highlights Fiocruz purchase compliance and product supply as material risks.
- Protalix reported a 40% share of Pfizer collaboration net income of $705,000, based primarily on $5.4 million of Pfizer revenue, mainly in the United States. The Brazil arrangement also provides for payments to Pfizer from Protalix’s defined net profits and a 5% fee on Brazil net proceeds to an agent.
- Pipeline plans included reporting interim PRX-102 Fabry disease trial results in Q3 2015 and final results in Q4 2015; initiating proof-of-concept efficacy studies for PRX-106 and PRX-110 around year-end; and focusing on a new PRX-112 formulation during 2015.
- Management expected R&D to remain the company’s primary expense. Future funding needs depend on clinical progress, commercialization, regulatory outcomes, and other factors; additional financing may not be available on acceptable terms and could dilute shareholders or constrain operations.
- The company cited risks involving commercialization and adoption, regulatory approvals, clinical-trial outcomes and timing, collaborators and suppliers, intellectual property, competition, and its ability to service or refinance debt. It reported no material legal proceedings and no material changes to previously disclosed risk factors.
- Management concluded disclosure controls were effective as of quarter-end and reported no material changes in internal control over financial reporting. No off-balance-sheet arrangements were reported.
Investor facts to verify
- Whether Fiocruz met the additional purchase requirement by July 31, 2015, and the resulting status of the Brazil agreement and supply obligations.
- Subsequent cash use, financing plans, and whether the stated minimum 12-month liquidity expectation remained achievable.
- Progress and results for PRX-102, PRX-106, and PRX-110 against the reported timelines, including regulatory and trial developments.
- Pfizer collaboration economics and sales, Brazil-related payments and fees, and the effect of commercialization performance on Protalix’s cash flows.
- Convertible-note repayment or refinancing capacity and potential dilution from outstanding options, restricted shares, or note conversion.