Business Context and Reporting Period
Company: Protalix Biotherapeutics, Inc. (formerly Orthodontix, Inc.)
Reporting Period: Fiscal year ended December 31, 2006
Business Overview: Protalix is a clinical-stage biopharmaceutical company developing recombinant therapeutic proteins using a proprietary plant cell expression system. The company's operations are conducted through its wholly-owned Israeli subsidiary, Protalix Ltd.
Key Event: On December 31, 2006, the company consummated a reverse merger with Protalix Ltd., resulting in a recapitalization where former Protalix Ltd. shareholders acquired over 99% of the outstanding common stock. A one-for-ten reverse stock split was effected concurrently.
Key Financial Metrics
| Metric | 2006 | 2005 | 2004 |
|---|---|---|---|
| Revenues | $0 | $150,000 | $430,000 |
| Net Loss | $(9,390,000) | $(5,746,000) | $(2,421,000) |
| Accumulated Deficit | $(20,512,000) | $(11,122,000) | $(5,376,000) |
| Cash and Cash Equivalents | $15,378,000 | $4,741,000 | $1,477,000 |
| Total Assets | $26,988,000 | $7,225,000 | $3,955,000 |
| Total Liabilities | $2,704,000 | $1,130,000 | $2,480,000 |
| Shareholders' Equity | $24,284,000 | $6,095,000 | $1,475,000 |
Operating Expenses (2006):
- Research and Development (net of grants): $5,246,000
- General and Administrative: $4,525,000
- Financial Income: $344,000
Material Changes vs. Prior Period
- Revenue: Revenue dropped to zero in 2006 compared to $150,000 in 2005. The 2005 revenue was derived from milestone payments under a research contract that expired in early 2005.
- Net Loss: Net loss increased by approximately 63% to $9.39 million in 2006 from $5.75 million in 2005. This was driven by increased R&D and G&A expenses.
- Liquidity: Cash and cash equivalents increased significantly to $15.4 million in 2006 from $4.7 million in 2005, primarily due to $14.9 million in net proceeds from the sale of ordinary shares in September 2006.
- Equity Structure: The reverse merger and subsequent financing activities resulted in a substantial increase in shareholders' equity and the conversion of all convertible preferred shares into common stock.
Guidance, Outlook, and Risks
Outlook and Guidance
- Clinical Development: The company completed Phase I clinical trials for its lead product, prGCD (for Gaucher Disease), in June 2006. An application for FDA approval to initiate a pivotal Phase III trial was submitted, with commencement expected in 2007.
- Capital Needs: Management estimates that existing cash resources are sufficient to fund operations for at least the next 18 months. However, the company expects to spend a minimum of approximately $6 million on clinical development over the next 12 months and will require additional financing for long-term development.
- Collaborations: In September 2006, the company entered into a collaboration agreement with Teva Pharmaceutical Industries Ltd. for the development and manufacturing of two proteins.
Risks and Contingencies
- Regulatory Approval: No products have been approved for marketing. Failure to obtain FDA or foreign regulatory approvals would severely undermine the business.
- Financial Sustainability: The company has no product revenues and expects to incur substantial losses for the foreseeable future. It relies on equity offerings, debt, or licensing fees to fund operations.
- Israeli Operations: Operations are concentrated in Israel, exposing the company to political, economic, and military instability, as well as currency fluctuations between the U.S. Dollar and the New Israeli Shekel.
- Government Grants: The company relies on grants from the Israeli Office of the Chief Scientist (OCS). These grants require royalty payments on future product sales and restrict the transfer of technology and manufacturing outside of Israel.
Key Facts for Investor Verification
- Phase III Trial Status: Verify the FDA's decision on the application to commence the pivotal Phase III trial for prGCD, expected to begin in 2007.
- Cash Runway: Confirm the current cash burn rate and whether the 18-month liquidity estimate remains valid given the costs of the upcoming Phase III trial.
- Intellectual Property: Review the status of patent applications for the plant cell expression system and prGCD, and assess potential infringement risks regarding mammalian cell production patents.
- Collaboration Terms: Examine the specific milestone and royalty payment structures in the Teva Pharmaceutical Industries Ltd. agreement.
- Israeli Tax Compliance: Verify continued compliance with "Approved Enterprise" status and OCS grant requirements to ensure tax benefits are not revoked.