Protalix BioTherapeutics, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Financial statements are unaudited and in U.S. dollars; amounts below are in millions unless stated otherwise.
Business context
Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx plant-cell expression system. Its principal marketed product is taliglucerase alfa for Gaucher disease: Pfizer commercializes it in the United States and most other territories, while Protalix retained rights in Israel and Brazil. The Brazil supply and technology-transfer agreement with Fiocruz became effective in January 2014.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | $6.696 | $3.568; up 88% |
| Share of collaboration income | $0.687 | $0.400 |
| Gross profit | $3.310 | $2.997 |
| Net R&D expense | $6.067 | $5.323 |
| Selling, general and administrative expense | $3.711 | $2.103 |
| Operating loss | $6.468 | $4.429 |
| Net loss | $7.345 | $4.321 |
| Cash used in operating activities | $8.340 | $9.586 |
| Cash and cash equivalents | $77.690 at March 31, 2014 | $86.398 at December 31, 2013 |
Q1 revenue included approximately $3.5 million from Brazil, $1.1 million from Israel, $1.0 million for products delivered at cost to Pfizer, and quarterly amortization of prior upfront and milestone payments. The filing reports net loss per share as $0.08; its presentation does not clearly show a negative sign, although the period had a net loss.
At March 31, current assets were $88.561 million and current liabilities were $26.781 million. Total liabilities were $136.994 million, including $67.151 million of convertible notes; the notes have a 4.5% coupon and are due in 2018. Cash declined $8.708 million during the quarter. The company reported a capital deficiency of $33.578 million.
Material changes versus the prior comparable period
- Revenue increased substantially, primarily reflecting sales in Brazil and Israel and product deliveries to Pfizer.
- Cost of revenue rose to $4.073 million from $0.971 million. Q1 2014 included a $1.1 million inventory write-down and fixed manufacturing costs.
- Operating and net losses widened. SG&A increased 76%, mainly from Brazil-related sales and marketing costs and higher salaries. Financial results shifted from $0.108 million net income to $0.877 million net expense, primarily due to interest on the convertible notes.
- Operating cash use improved from $9.586 million to $8.340 million, while cash declined from the year-end balance of $86.398 million to $77.690 million.
Outlook, commentary, and risks
- Management said existing cash was expected to fund operating and capital needs for the foreseeable future, but cautioned that assumptions could prove incorrect and that additional financing may be needed. No committed future external funding was identified.
- The company expected significant continuing R&D spending. It anticipated PRX-102 interim results by year-end 2014 and final results in the first half of 2015; a Phase IIa study of oral PRX-112 was expected to begin within the following few months; and a Phase I trial of PRX-106 was expected in 2014. These are forward-looking plans, not reported outcomes.
- Fiocruz committed to purchases of approximately $40 million during the first two years and at least approximately $40 million annually thereafter. The technology-transfer arrangement may extend beyond its initial seven-year term. Protalix may owe Pfizer up to approximately $12.5 million per year from defined net profits related to the transfer of Brazil rights, and pays an agent 5% of Brazil net proceeds.
- Key risks include commercialization and product acceptance, supply obligations, regulatory approvals, clinical-trial outcomes, reliance on Pfizer and other partners, and the possibility that additional financing may not be available on acceptable terms. The company also cited foreign-exchange exposure, especially costs incurred in Israeli shekels, and potential disruption from regional conflict.
- The filing reported no material legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Brazil sales and Fiocruz’s minimum purchase commitments translate into sustained revenue and cash receipts, and how Brazil-related payments to Pfizer and the agent affect economics.
- Cash burn, remaining cash runway, and the assumptions underlying management’s “foreseeable future” funding assessment.
- Convertible-note terms and obligations, including the 2018 maturity and interest burden.
- Progress and results for PRX-102, PRX-112, PRX-106, and the requested pediatric-label supplement for taliglucerase alfa.
- The reported $0.08 loss per share: verify its sign and presentation against the filed financial statements.