Protalix BioTherapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. Financial statements are unaudited; dollar amounts below are in millions unless stated otherwise. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx plant-cell expression system. Taliglucerase alfa (ELELYSO/UPLYSO) is its first approved product.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $2.396 | $2.284 | $11.517 | $8.116 |
| Company share of collaboration income | $1.311 | $1.075 | $2.259 | $2.275 |
| Gross profit | $1.909 | $1.772 | $6.300 | $6.515 |
| Net R&D expense | $6.105 | $5.637 | $17.134 | $17.418 |
| SG&A expense | $2.012 | $1.780 | $7.289 | $6.065 |
| Operating loss | $6.208 | $5.645 | $18.123 | $16.968 |
| Net loss | $8.010 | $5.747 | $21.474 | $16.905 |
| Basic and diluted loss per share | $0.09 | $0.06 | $0.23 | $0.18 |
- Nine-month revenue increased 42%, including $3.8 million of Israeli product sales, $3.5 million of Brazilian sales and $1.4 million of product delivered to Pfizer at cost. Revenue also includes quarterly amortization of prior Pfizer upfront and milestone payments. Q3 revenue increased 5% year over year.
- Nine-month gross profit declined $0.2 million despite higher revenue: cost of revenue rose 93% to $7.5 million. This included a $1.6 million inventory write-down and costs of products supplied to Pfizer. Q3 gross profit improved to $1.9 million from $1.8 million.
- Nine-month net loss widened by $4.6 million. Net financial expense was $3.4 million versus $0.1 million of net financial income in the comparable period, mainly from $2.7 million of convertible-note interest and $0.8 million from NIS depreciation. Q3 financial expense was $1.8 million, including $0.9 million of note interest and $0.9 million of currency effects.
- Cash and cash equivalents were $60.3 million at September 30, 2014, down $26.1 million from year-end 2013. Operating cash use was $24.4 million; investing cash use was $0.8 million; financing provided $0.04 million. The company reported no material off-balance-sheet arrangements.
- Total liabilities were $132.5 million, including $67.4 million carrying value of convertible notes and $45.0 million of deferred revenue. Notes have $69.0 million aggregate principal, bear 4.5% interest and are due 2018. Current assets were $71.2 million and current liabilities $24.4 million. Capital deficiency was $47.7 million.
Material changes and operating developments
- Nine-month SG&A rose 20%, primarily due to $1.8 million of sales and marketing expense, mainly related to Brazil. Net R&D expense was broadly stable year over year; Q3 increased 8%, mainly from subcontractor and consultant costs.
- The FDA approved taliglucerase alfa for pediatric patients in August 2014. In September, Brazil’s CONITEC recommended UPLYSO as the first-choice treatment for new adult Gaucher patients; management expected implementation around year-end 2014.
- The Brazil supply and technology-transfer agreement with Fiocruz became effective in 2014. Fiocruz committed to purchases of approximately $40 million in the first two years and approximately $40 million annually thereafter. Protalix reported $3.5 million of Brazilian product sales in the first nine months. Brazil commercialization rights returned to Protalix; the company agreed to pay Pfizer up to approximately $12.5 million annually from defined net profits and an agent 5% of Brazilian net proceeds.
- At September 30, 2014, cash was lower than at December 31, 2013 ($60.3 million versus $86.4 million), while total assets declined from $113.3 million to $84.8 million. Convertible-note carrying value was $67.4 million, compared with $67.0 million at year-end.
Outlook, risks and other matters
- Management said available cash should fund operating and capital needs for the foreseeable future, while warning that estimates depend on assumptions and could prove incorrect. Protalix expects significant ongoing R&D spending and may need additional financing; no future funding commitments were disclosed.
- Pipeline expectations stated in the filing: PRX-102 Phase I/II interim results around year-end 2014 and final results in 2015; PRX-112 Phase IIa results by year-end 2014; initiation of a PRX-106 Phase I trial around year-end; and an IND filing for PRX-110 after toxicology studies around year-end. These are management expectations, not reported outcomes.
- Key risks include commercial uptake and launch timing, Fiocruz’s purchase and supply obligations, regulatory approvals, clinical-trial outcomes, dependence on partners and suppliers, competition, and ability to finance operations and repay or refinance the 2018 notes. The filing reported no material change to previously disclosed risk factors.
- The company reported no material legal proceedings. Management concluded disclosure controls were effective; no material changes to internal control over financial reporting were reported. A new CEO was appointed in September 2014.
Most important facts for investors to verify
- Whether cash burn, commercial receipts and development spending support management’s stated liquidity outlook, and whether additional financing becomes necessary.
- Fiocruz’s actual purchase performance against contractual minimums, implementation of the Brazilian treatment recommendation, and the economics after Pfizer and agent payments.
- Commercial revenue and collaboration profitability by territory, including the effects of product-supply costs and inventory write-downs on margins.
- Progress and reported results for PRX-102, PRX-112, PRX-106 and PRX-110, together with regulatory timelines for taliglucerase alfa in additional markets.
- The terms, repayment or refinancing capacity, and potential shareholder dilution associated with the $69.0 million principal amount of 2018 convertible notes.