Protalix BioTherapeutics, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Dollar amounts below are U.S. dollars. Protalix develops and commercializes protein therapeutics using its ProCellEx platform. Its marketed products are Elfabrio for Fabry disease, commercialized with Chiesi, and Elelyso for Gaucher disease, licensed to Pfizer outside Brazil; Protalix retains Brazilian rights.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $3.75 million | $9.59 million | Down 61% |
| Revenue from goods | $3.68 million | $5.07 million | Down 27% |
| License and R&D services revenue | $0.07 million | $4.52 million | Down 98% |
| Cost of goods sold | $2.60 million | $3.09 million | Down 16% |
| Research and development | $2.89 million | $5.85 million | Down 50% |
| Selling, general and administrative | $3.12 million | $3.12 million | Flat |
| Operating loss | $4.86 million | $2.46 million | Loss increased |
| Net loss | $4.60 million | $3.13 million | Loss increased 47% |
| Basic and diluted loss per share | $0.06 | $0.05 | — |
| Operating cash flow | +$4.19 million | −$3.00 million | Improved |
Goods revenue generated approximately $1.08 million of gross profit, or a 29% gross margin on goods sales. The company reported a $0.12 million net financial income, versus $0.48 million net financial expense in Q1 2023, and a $0.14 million tax benefit versus $0.20 million of tax expense.
Liquidity, debt and capital
- At March 31, 2024, cash and cash equivalents were $27.21 million and short-term bank deposits were $21.28 million, totaling $48.49 million. Total current assets were $75.40 million; current liabilities were $54.83 million.
- Cash and cash equivalents increased $3.58 million during the quarter. Operating cash flow benefited substantially from an $11.04 million increase in contracts liability, alongside a $3.30 million inventory increase. Investing cash outflow was $0.61 million; there were no financing proceeds in the quarter.
- The company had $20.42 million principal amount of 7.50% senior secured convertible notes outstanding, due September 2024. The notes are secured by liens on company and subsidiary assets. A $7.5 million minimum-cash covenant applied; the company reported compliance at quarter-end.
- About $6.4 million of gross offering capacity remained under the 2023 at-the-market share sale agreement. No ATM shares were sold in Q1 2024. Weighted-average shares were 73.04 million, versus 57.48 million in Q1 2023.
Material changes and management commentary
- Goods revenue fell primarily because of delivery timing: Pfizer sales declined $1.1 million and Brazil sales declined $0.3 million. The company reported collecting approximately $1.1 million from Pfizer and $2.6 million from Brazil in May 2024.
- The sharp decline in license and R&D services revenue reflected completion of Elfabrio development and regulatory review work following U.S. and EU approvals in May 2023. R&D spending also fell as the Fabry clinical program and those regulatory processes were completed.
- Management expects significant, increasing R&D spending as candidates advance. It stated that available cash, equivalents and short-term deposits should fund capital needs for at least 12 months from issuance of the financial statements, while noting that future revenue may not cover spending and additional financing may be needed.
- Protalix reported that 56 subjects had been dosed in the PRX-115 Phase I study by March 31. In May 2024, it decided to add an eighth cohort and begin preparations for a Phase II trial. Preliminary company-reported results included dose-related reductions in uric acid and generally tolerable treatment; one subject experienced an anaphylactic reaction that resolved.
- Elfabrio is approved in the U.S., EU, Great Britain, Switzerland and Israel. The FDA approval includes a boxed warning for hypersensitivity/anaphylaxis and warnings including membranoproliferative glomerulonephritis. The FDA concluded the BALANCE trial met its primary endpoint but did not support a non-inferiority claim to the comparator.
Risks, contingencies and unusual items
- The company’s operations are conducted in Israel. It said the conflict had not adversely affected operations as of issuance, but its duration and business effects are uncertain; it stores drug substance at locations inside and outside Israel to mitigate risk.
- Protalix identifies risks involving Elfabrio’s market acceptance, competition, reimbursement and boxed warning; clinical and regulatory outcomes for candidates; dependence on Chiesi and Pfizer; financing availability; and the ability to meet note obligations. Fiocruz’s purchases have been below agreed purchase milestones, giving Protalix a termination right, although it continued supplying Brazil.
- The $11.04 million contracts-liability increase drove the positive operating cash flow despite the net loss. The filing does not clearly identify in the presented discussion the specific underlying receipt or transaction that caused this increase.
- Protalix adopted ASU 2020-06 on January 1, 2024, changing convertible-note accounting to a single liability. The adoption reduced first-quarter financial expense by approximately $0.06 million compared with accounting without adoption and increased the reported note liability by approximately $0.11 million versus that comparison.
- No material legal proceedings or off-balance-sheet arrangements were reported. Management said disclosure controls were effective and there were no material changes to internal control over financial reporting during the quarter.
Investor verification points
- Confirm the source, timing and cash implications of the $11.04 million contracts-liability increase and whether comparable customer advances recur.
- Assess the September 2024 note maturity, refinancing or repayment plan, conversion terms, and related covenant headroom.
- Track Elfabrio commercial sales, Chiesi’s rollout and supply arrangements, and the effect of the FDA warning and competitive market on uptake.
- Verify delivery timing and sustainability of Pfizer and Brazil sales, including Fiocruz purchase commitments and the company’s termination rights.
- Monitor PRX-115 safety findings, including the reported anaphylactic reaction, and the scope, timing and funding needs of the planned Phase II trial.
- Evaluate cash runway against expected increasing R&D expenses, ATM availability, potential dilution and the company’s stated 12-month liquidity assessment.