Protalix Biotherapeutics, Inc. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. Amounts are in U.S. dollars; financial statement amounts are in thousands unless otherwise noted.
Business context and reporting period
Protalix develops recombinant therapeutic proteins using its ProCellEx plant-cell expression system. Its lead product, taliglucerase alfa (ELELYSO), received FDA approval on May 1, 2012 for adults with type 1 Gaucher disease and Israeli Ministry of Health approval in September 2012. Pfizer markets the product in the United States under an exclusive worldwide license, while Protalix retained Israeli rights. The company also has development programs including PRX-102 for Fabry disease.
Key financial metrics
| Metric | Three months ended Sep. 30, 2012 | Three months ended Sep. 30, 2011 | Nine months ended Sep. 30, 2012 | Nine months ended Sep. 30, 2011 |
|---|---|---|---|---|
| Revenue | $3,724 | $1,132 | $33,698 | $6,024 |
| Gross profit | $3,023 | $677 | $27,410 | $1,149 |
| Operating loss | $(5,560) | $(8,767) | $(2,005) | $(27,673) |
| Net loss | $(5,479) | $(8,875) | $(1,741) | $(27,616) |
| Loss per share, basic and diluted | $(0.06) | $(0.10) | $(0.02) | $(0.33) |
- Revenue and profit drivers: Nine-month revenue included a $25.0 million Pfizer milestone for FDA approval, amortization of prior $65.0 million upfront and milestone payments, and product-related revenue. Q3 revenue included quarterly amortization and product-related amounts, but no FDA milestone. The reported collaboration share was income of $1.666 million in Q3 and $0.678 million for nine months, compared with losses of $0.235 million and $3.745 million, respectively, in 2011.
- Margins and expenses: Reported gross profit includes the collaboration share, so gross profit as a percentage of product revenue alone is not directly comparable. Nine-month net R&D expense was $22.062 million, down from $23.508 million; G&A was $7.353 million, up from $5.314 million. Q3 net R&D was $6.363 million and G&A was $2.220 million.
- Cash flow: For nine months, operating cash use was $1.186 million, investing cash use was $1.910 million, and financing provided $26.424 million. Cash increased $23.215 million to $50.216 million.
- Liquidity and liabilities: At September 30, cash and equivalents were $50.216 million and current assets were $59.580 million, versus $27.001 million and $32.491 million at December 31, 2011. Current liabilities were $20.435 million; total liabilities were $72.606 million, including $52.063 million of deferred revenue. Shareholders’ equity was $4.772 million, compared with a $26.077 million capital deficiency at year-end 2011. The filing reports a $2.794 million long-term liability; it does not clearly characterize this amount as debt.
Material changes versus the prior comparable period
- Nine-month revenue rose $27.674 million, primarily because of the $25.0 million FDA-approval milestone. The lower net loss therefore reflects a major milestone payment and should not be read as evidence of recurring profitability.
- Nine-month operating cash use fell from $16.958 million to $1.186 million. Cash was also supported by the February 2012 public stock offering, which generated approximately $25.388 million net, and option exercises.
- After FDA approval, manufacturing costs for taliglucerase alfa began to be capitalized or included in cost of revenues rather than expensed as R&D. This reclassification contributed to lower reported R&D expense and higher cost of revenues.
- G&A expense increased, primarily from salaries, bonuses and share-based compensation. Nine-month share-based compensation totaled $6.065 million across operating activities.
Outlook, risks and unusual items
- Management said available funds were expected to support planned activities and expenditures for at least 12 months, while cautioning that unexpected expense increases or other changes could require earlier financing. No future external funding commitments were in place.
- The company expected continued operating losses and significant R&D spending. It anticipated revenue growth from Pfizer’s U.S. commercialization, Israeli sales following local approval, and possible approvals elsewhere; these outcomes were uncertain.
- The European Commission refused marketing authorization for taliglucerase alfa, endorsing the EMA committee’s recommendation. The filing says the recommendation was based on Shire’s orphan-market exclusivity for VPRIV, not taliglucerase alfa’s safety or efficacy profile. Applications were pending in Brazil and other countries.
- Other key risks include adoption and reimbursement, regulatory delays, the ability to supply and commercialize the product, competition, clinical-development uncertainty, and the need for additional capital. The company said there had been no material changes to previously disclosed risk factors.
- Unusual items included the $25.0 million approval milestone and compensation expense associated with performance-based awards following FDA approval. The July 2012 restricted-stock grant covered 1.5 million shares, with estimated grant-date fair value of approximately $8.58 million.
- Management reported effective disclosure controls as of quarter-end and no material change in internal control over financial reporting during the quarter. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- How much revenue and collaboration income are recurring, versus milestone payments, deferred-payment amortization, resupply activity, or other one-time items.
- Pfizer’s U.S. sales, the resulting 40% Protalix collaboration share, and the costs included in the collaboration profit calculation.
- Timing and commercial prospects for Israeli sales, Brazilian approval and supply arrangements, and any further regulatory decisions following the EU refusal.
- Cash use, commitments and financing needs against management’s at-least-12-month liquidity estimate, including the effect of continued R&D investment and commercialization costs.
- Share-based compensation, restricted-stock vesting and dilution; common shares outstanding were approximately 93.465 million on November 4, 2012.