Protalix BioTherapeutics, Inc. — Q3 2020 Form 10-Q
Business context and reporting period. The unaudited filing covers the three and nine months ended September 30, 2020. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx plant-cell platform. Its lead investigational candidate, PRX-102 for Fabry disease, is partnered with Chiesi; taliglucerase alfa is commercialized by Pfizer outside Brazil, while Protalix sells in Brazil.
Financial performance
Amounts below are in U.S. dollars in millions, except per-share data and percentages.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $10.8 | $14.2 | $43.4 | $36.9 |
| Revenue from goods | $3.3 | $5.1 | $12.0 | $12.1 |
| License and R&D services revenue | $7.5 | $9.1 | $31.4 | $24.8 |
| Cost of goods sold | $2.9 | $3.2 | $8.1 | $7.9 |
| R&D expense, net | $7.7 | $10.0 | $27.2 | $35.0 |
| Selling, general and administrative | $2.8 | $2.6 | $8.2 | $6.9 |
| Operating loss | $(2.6) | $(1.5) | $(0.1) | $(12.9) |
| Net loss | $(4.4) | $(3.6) | $(6.9) | $(18.6) |
| Basic and diluted loss per share | $(0.14) | $(0.24) | $(0.25) | $(1.25) |
- Operating margin was approximately negative 23.9% in Q3 and negative 0.3% for the nine-month period; net margin was approximately negative 41.1% and negative 15.9%, respectively.
- Cash and cash equivalents were $13.5 million and short-term bank deposits were $27.8 million at September 30. Current assets were $60.3 million against current liabilities of $43.9 million, implying working capital of $16.4 million and a current ratio of approximately 1.37.
- Nine-month operating cash use was $18.6 million, investing cash use $27.5 million, and financing cash inflow $41.8 million. Investing outflow was mainly the $27.5 million increase in bank deposits. Cash and equivalents declined $4.3 million from year-end 2019.
- Total liabilities were $105.6 million. The company reported $53.5 million of convertible notes on the balance sheet; it separately disclosed $57.9 million principal outstanding for the 7.50% secured 2021 Notes in its liquidity discussion and approximately $59.7 million principal in the fair-value note. The note fair value was estimated at $62.4 million. A $4.3 million Pfizer promissory note is also classified as current.
Changes versus comparable periods
- Q3 total revenue fell 24% year over year. Goods revenue declined 36%, primarily due to timing of Brazil sales, partly offset by higher Pfizer sales; license and R&D revenue declined 18%, reflecting completion of two of three Phase III PRX-102 trials and lower BALANCE study costs.
- Nine-month revenue rose 18%, driven by a 26% increase in license and R&D services revenue. The company recorded $6.7 million of revenue from a revised estimate of expected costs under the Chiesi agreements.
- Nine-month R&D expense declined 22%, mainly due to completed trials, reduced BALANCE costs, and drug product costs recorded in inventory. SG&A increased 19%, primarily from higher share-based compensation; net financial expense increased 20%, mainly due to convertible-note expenses.
- Net loss improved for the nine-month period, but worsened in Q3. Weighted-average shares increased substantially following the March 2020 private placement; 17.6 million shares and warrants for a further 17.6 million shares were issued, and 200,000 warrants were exercised in September.
Outlook, developments and risks
- Management stated that cash, cash equivalents and bank deposits should fund needs for at least 12 months from issuance of the statements. It also expects available funds, revenue and potential Chiesi milestone proceeds to support repayment of the 2021 Notes at maturity. This depends on future cash generation and milestones; management warned that insufficient funds could require financing, restructuring, reduced operations, or cessation of operations.
- The 2021 Notes mature November 15, 2021 unless refinanced, restructured or converted. They are secured by a lien on company assets, and the indenture requires a minimum cash balance of $7.5 million. The Pfizer promissory note maturity was extended to the earlier of January 31, 2022 or receipt of a Chiesi milestone, subject to conditions.
- PRX-102’s BLA received FDA Priority Review, with a January 27, 2021 action date. FDA inspections of Protalix’s manufacturing facility and a European fill-and-finish facility could be delayed by COVID-19 travel restrictions; the company and Chiesi sought an FDA Type A meeting to address inspections. BRIGHT trial treatment was complete, with topline results expected by the end of Q1 2021. BALANCE continued, with an interim analysis planned after patients reached 12 months of treatment.
- Management reported that COVID-19 had not materially affected trials to date, but trial procedures and staffing were adjusted and further adjustments could be needed. Other key risks include regulatory approval and inspection timing, clinical outcomes, financing and debt repayment, Fiocruz purchase obligations in Brazil, reliance on partners and suppliers, and potential dilution from the ATM program.
- After quarter-end, the company entered into an ATM sales agreement for up to $30 million of common stock. Proceeds are not assured, and sales could dilute shareholders or pressure the share price. The company also reported collecting approximately $2.7 million of September receivables in October.
Important facts for investors to verify
- Reconcile the different disclosed principal amounts for the 2021 Notes and confirm the repayment, conversion or refinancing plan before the November 2021 maturity.
- Track FDA inspection resolution and whether the PRX-102 review remains on schedule for the January 27, 2021 action date.
- Assess upcoming BRIGHT and BALANCE results, regulatory implications, and the extent to which Chiesi milestone payments are achievable.
- Monitor operating cash use, the $7.5 million minimum-cash covenant, and any ATM share sales or other financing needs.
- Evaluate the sustainability of license and R&D revenue, including the impact of the $6.7 million cost-estimate adjustment, and Brazil sales timing and Fiocruz commitments.