Protalix Biotherapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited figures are in U.S. dollars; financial amounts below are in millions unless stated otherwise.
Business context
Protalix develops and manufactures recombinant therapeutic proteins using its plant-cell ProCellEx platform. Its commercial product is taliglucerase alfa, sold in Brazil and supplied to Pfizer for markets outside Brazil. Its lead investigational product, PRX-102, is in development for Fabry disease and is partnered with Chiesi. The company’s other candidates include PRX-110, PRX-115 and PRX-119.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Total revenue | $8.753 | $6.427 | $24.838 | $17.747 |
| Cost of goods sold | $4.087 | $4.733 | $10.121 | $9.498 |
| Research and development | $7.579 | $7.689 | $16.346 | $14.811 |
| Selling, general and administrative | $2.611 | $3.171 | $5.765 | $6.309 |
| Operating loss | $(5.524) | $(9.166) | $(7.394) | $(12.871) |
| Net loss | $(5.334) | $(11.241) | $(7.620) | $(16.716) |
| Basic and diluted loss per share | $(0.11) | $(0.25) | $(0.16) | $(0.39) |
Revenue increased 36% in Q2 and 40% in H1 year over year. Q2 license and R&D services revenue was $5.371 million, up from $3.184 million; goods revenue was $3.382 million, up from $3.243 million. H1 goods revenue rose to $12.410 million from $7.754 million, primarily from Brazil sales, while Pfizer sales were approximately flat. Calculated gross profit (revenue less cost of goods sold) was $4.666 million in Q2 and $14.717 million in H1; the filing does not present a consolidated gross-margin measure.
Net losses narrowed in both comparable periods. Management attributed the improvement in net financial expense chiefly to lower interest and debt-amortization costs after the 2021 notes were exchanged for lower-principal 2024 notes, and to exchange-rate movements. H1 R&D expense increased 10%, mainly reflecting regulatory-submission subcontractor costs and materials; management expects R&D to remain its primary expense.
At June 30, 2022, cash and cash equivalents were $12.492 million and short-term bank deposits were $16.082 million, totaling $28.574 million. Total current assets were $49.700 million and current liabilities were $30.960 million. Total liabilities were $70.529 million, against assets of $60.640 million, leaving a capital deficiency of $9.889 million.
H1 operating cash use was $13.185 million, versus $3.318 million in H1 2021. Investing cash use was $15.900 million, primarily reflecting investment in bank deposits; financing provided $2.643 million, mainly from ATM share sales. Cash and cash equivalents decreased by $26.493 million during H1. The filing reports no separate cash-flow margin measure.
The 7.50% senior secured convertible notes due 2024 had $28.75 million aggregate principal outstanding and a $28.033 million carrying amount at quarter-end; estimated fair value was $32.3 million. The notes mature September 1, 2024 and are secured by company assets. A covenant requires at least $7.5 million of cash; Protalix reported compliance at June 30.
Material changes and financing
- H1 revenue growth was led by Brazil goods sales, which were $5.454 million versus $0.988 million a year earlier. Pfizer goods revenue was $6.738 million versus $6.748 million.
- Q2 goods revenue from Brazil was zero, compared with $0.988 million in Q2 2021; management said higher Pfizer sales, driven by timing, largely offset the decline.
- The company sold 2,395,823 shares under its ATM program during H1, reporting approximately $2.8 million gross proceeds and $2.641 million net proceeds. Approximately $17.2 million of gross offering capacity remained at June 30 under the $20 million ATM authorization.
- Authorized common shares increased from 120 million to 144 million; the charter amendment was filed August 2, 2022. The company reported 48,712,952 shares outstanding at June 30 and approximately 49,753,409 on August 12.
Outlook, milestones and risks
- Management stated that cash and short-term deposits were expected to fund capital needs for at least 12 months from issuance of the financial statements. It also said additional capital may be needed for product development and R&D; no specific revenue, earnings or cash-flow guidance was provided.
- The PRX-102 European marketing application was submitted and validated by the EMA in February 2022. The FDA had issued a Complete Response Letter for the U.S. application, citing the need for an inspection of the Carmiel manufacturing site and resolution of any outstanding matters at the European fill-and-finish facility. The planned U.S. resubmission package includes final two-year BALANCE study analyses; timing and approval remain uncertain.
- Management reported that the completed BALANCE study met its prespecified non-inferiority endpoint versus agalsidase beta. This is clinical evidence, not regulatory approval. The BRIDGE and BRIGHT studies were also completed; extension studies continue.
- Risks include regulatory review and inspection delays, clinical and commercialization uncertainty, potential financing needs and dilution, the ability to meet note obligations and maintain the cash covenant, dependence on Chiesi and Pfizer, and Fiocruz’s purchases under the Brazil agreement. Fiocruz purchases have been below certain contractual milestones, giving Protalix a termination right, though it continued supplying the product.
- The company reported that COVID-19 had minimally affected PRX-102 Phase III trials to date, but noted uncertainty about future effects. It reported no material legal proceedings, no off-balance-sheet arrangements and effective disclosure controls as of quarter-end.
Most important facts for investors to verify
- PRX-102 regulatory progress: FDA inspection requirements, planned BLA resubmission and EMA review status.
- Cash runway and operating cash use, including the distinction between cash equivalents and short-term bank deposits, and compliance with the $7.5 million minimum-cash covenant.
- Potential funding and dilution: remaining ATM capacity, subsequent share sales and shares outstanding.
- Commercial revenue sources and timing, particularly Brazil orders, Pfizer sales and Chiesi-related license and R&D revenue.
- 2024 notes’ principal, interest obligations, maturity, conversion terms and refinancing or repayment capacity.