Protalix Biotherapeutics, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. Unaudited consolidated figures are in U.S. dollars; financial amounts below are in millions unless stated otherwise.
Business context
Protalix develops recombinant therapeutic proteins using its plant-cell ProCellEx platform. Its first approved product, taliglucerase alfa for Gaucher disease, is marketed in the United States by Pfizer and in Israel by Protalix. During the quarter, the company signed a supply and technology-transfer agreement with Brazil’s Fiocruz; its effectiveness remained subject to approval by Brazil’s National Institute of Industrial Property.
Financial performance and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $2.264 | $26.113 | $5.832 | $29.974 |
| Share of collaboration income (loss) | $0.800 | $(0.855) | $1.200 | $(0.988) |
| Gross profit | $1.746 | $21.979 | $4.743 | $24.387 |
| Operating profit (loss) | $(6.894) | $9.620 | $(11.323) | $3.555 |
| Net profit (loss) | $(6.837) | $9.642 | $(11.158) | $3.738 |
| Basic loss per share | $(0.07) | $0.11 | $(0.12) | $0.04 |
- Q2 revenue fell $23.849 million year over year, chiefly because Q2 2012 included a $25 million Pfizer milestone upon FDA approval. 2013 revenue included product sales, deliveries to Pfizer, and amortization of prior Pfizer payments.
- Q2 2013 R&D expense was $8.0 million, down 24%; G&A was $2.2 million, down 38%. Management attributed much of the decline to 2012 approval-related share compensation and bonuses, and lower clinical-trial spending. The company expects R&D to remain its primary expense.
- At June 30, cash and cash equivalents were $33.126 million, versus $52.035 million at December 31, 2012. Current assets were $45.932 million and current liabilities $26.628 million, implying working capital of about $19.3 million.
- Operating cash use was $17.695 million in the first half of 2013, compared with operating cash provided of $6.843 million in the first half of 2012. Investing cash use was $1.412 million; financing provided $0.030 million. Inventory rose to $7.191 million from $4.039 million.
- Total liabilities were $74.292 million, including $54.118 million of deferred revenue ($9.003 million current and $45.115 million long term). The balance sheet presents no conventional borrowing line; capital deficiency was $11.986 million. These deferred-revenue balances should not be treated as debt without further analysis.
Material changes, outlook and risks
- The 2013 results contrast with 2012’s milestone-driven profit: the company reported first-half net loss of $11.158 million versus net income of $3.738 million.
- The Brazil agreement provides for Fiocruz to purchase at least approximately $40 million of taliglucerase alfa during the first two years and at least approximately $40 million annually thereafter. The agreement describes a seven-year initial technology-transfer term, potentially extendable by five years. These purchases and subsequent arrangements depend on the agreement becoming effective and on technology transfer and regulatory conditions. Protalix may owe Pfizer up to approximately $12.5 million annually from defined net profits and an agent 5% of net proceeds generated in Brazil.
- Management estimated existing cash and commitments would support planned development and spending for approximately 15 months, while cautioning that assumptions could change and additional financing might be needed sooner. No future external funding commitments were reported. Potential funding could include equity, debt, grants, or collaborations, with possible dilution or restrictions.
- Management anticipated revenue growth as commercialization advances in the United States, Israel and Brazil and as taliglucerase alfa launches in other markets. This is forward-looking, not assured. The filing highlights commercialization, regulatory approval, market acceptance, partner execution, development costs, financing, competition, intellectual-property and geopolitical risks.
- Pipeline work included PRX-102 and oral PRX-112 in early clinical studies, with other candidates at preclinical or earlier stages. No quantitative financial guidance was provided.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. The company reported no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether and when the Brazil Agreement received the required approval, and whether Fiocruz’s purchase commitments and transfer milestones are being met.
- How quickly U.S. and international taliglucerase alfa sales translate into Protalix revenue and collaboration income, including the effect of Pfizer’s profit-sharing and Brazil-related payments.
- Cash burn, inventory build, deferred-revenue recognition, and whether the stated approximately 15-month runway remains valid.
- Progress, cost and regulatory timing for PRX-102, PRX-112 and other pipeline programs, and whether additional financing becomes necessary.