Protalix BioTherapeutics, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Amounts are U.S. dollars unless stated otherwise. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx platform. Its marketed taliglucerase alfa is sold in Brazil by Protalix and elsewhere by Pfizer; PRX-102 for Fabry disease is in Phase III development and licensed to Chiesi.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue from goods | $3.530 million | $4.553 million |
| License and R&D services revenue | $6.909 million | $2.161 million |
| Total revenue | $10.439 million | $6.714 million |
| Cost of goods sold | $2.045 million | $2.924 million |
| Gross profit and margin | $8.394 million; 80.4% | $3.790 million; 56.5% |
| Net R&D expense | $11.698 million | $6.443 million |
| SG&A expense | $2.230 million | $2.498 million |
| Operating loss | $5.534 million | $5.151 million |
| Net loss | $7.264 million | $7.239 million |
| Basic and diluted loss per share | $0.05 | $0.05 |
| Cash used in operating activities | $7.276 million | $9.413 million |
At March 31, 2019, cash and cash equivalents were $30.363 million, down from $37.808 million at year-end 2018. Current assets were $47.341 million and current liabilities $27.036 million, implying working capital of approximately $20.305 million and a current ratio of about 1.75. Total assets were $61.044 million; total liabilities were $120.899 million, leaving a capital deficiency of $59.855 million.
Convertible notes had a $48.670 million carrying value; the filing reports $57.9 million principal outstanding and an estimated $64.5 million fair value at quarter-end. The notes bear 7.50% interest and are due in 2021. Contracts liabilities totaled $42.408 million. Operating lease liabilities were $5.755 million following adoption of the new lease standard.
Changes versus prior year
- Total revenue rose $3.725 million, primarily as license and R&D services revenue recognized under the Chiesi agreements increased $4.748 million. Goods revenue declined $1.023 million (22%), mainly due to lower drug-substance sales to Pfizer.
- Net R&D expense increased $5.255 million (82%), principally because clinical-trial costs rose $3.0 million; management expects R&D to remain the primary expense, particularly for PRX-102.
- Operating loss widened by $0.383 million while net loss was nearly unchanged. Net operating cash use improved by $2.137 million year over year.
- Cash declined $7.445 million during Q1 2019. The operating cash outflow included a $3.608 million increase in receivables and was partly offset by lower inventory and higher payables/accruals.
Outlook, risks and notable items
- Management believes available cash and commitments will fund planned activities for at least 12 months, but cautions that assumptions may change and additional financing could be needed sooner. No formal financial forecast or revenue guidance is provided.
- PRX-102 is in an ongoing Phase III trial; PRX-110 completed a Phase IIa study, and OPRX-106 is in development following Phase II data. Chiesi agreements provide for development-cost payments and potential regulatory and commercial milestones, but milestone payments are contingent and not assured.
- Fiocruz purchases of taliglucerase alfa have been below specified purchase milestones. Protalix says it retains a termination right but continues supplying the product in Brazil.
- Management disclosed a material weakness in internal control over financial reporting relating to accounting for complex out-licensing revenue contracts; disclosure controls were deemed ineffective at March 31, 2019. Remediation actions were underway, but the weakness had not yet been considered remediated. Management stated the financial statements were fairly presented in all material respects.
- Other key risks include clinical and regulatory setbacks, financing and convertible-note obligations, dependence on collaborators and suppliers, competition, and the ability to meet Pfizer supply commitments. No material legal proceedings or material changes to previously reported risk factors were disclosed.
- Adoption of lease accounting in January 2019 added approximately $5.9 million of operating lease right-of-use assets and $5.7 million of lease liabilities. The filing reports $292,000 of Q1 operating lease costs.
Important facts for investors to verify
- Cash runway assumptions and future funding needs relative to clinical-trial spending and convertible-note obligations.
- PRX-102 Phase III progress, costs, results, regulatory pathway and any contingent Chiesi payments.
- Revenue composition and sustainability, including Chiesi contract-liability recognition and sales to Pfizer and Fiocruz.
- Progress and independent effectiveness testing of remediation for the material weakness in revenue-contract accounting.
- Fiocruz purchase commitments and Protalix’s decision whether to continue or terminate the Brazil agreement.