Protalix BioTherapeutics, Inc. — Q2 2011 Form 10-Q
Reporting period: Three and six months ended June 30, 2011; financial statements are unaudited. Dollar amounts below are U.S. dollars. Protalix is a development-stage biopharmaceutical company focused on its ProCellEx plant-cell protein expression platform. Its lead candidate, taliglucerase alfa for Gaucher disease, was awaiting regulatory approval.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $0.764m | $1.141m | $4.892m | $2.282m |
| Company share in Pfizer collaboration | $(5.382)m | $(0.528)m | $(3.510)m | $(0.822)m |
| Gross profit (loss) | $(4.750)m | $0.613m | $0.472m | $1.460m |
| Net R&D expense, after grants and reimbursements | $7.319m | $9.498m | $15.590m | $16.846m |
| General and administrative expense | $1.799m | $1.265m | $3.788m | $2.884m |
| Operating loss | $(13.868)m | $(10.150)m | $(18.906)m | $(18.270)m |
| Net loss | $(13.689)m | $(10.041)m | $(18.741)m | $(17.996)m |
| Loss per share, basic and diluted | $0.16 | $0.12 | $0.22 | $0.22 |
Six-month revenue rose 114%, principally because product deliveries under the Pfizer agreement contributed in 2011; no products were delivered in the comparable 2010 period. Q2 revenue fell 33%. The Q2 collaboration loss largely reflected Protalix’s 40% share of Pfizer’s allowance related to possible replacement of Brazil-supply vials that could expire in 2012. That charge drove the reported gross loss; conventional gross-margin comparisons are therefore not especially informative.
For the six months, R&D expense before grants and reimbursements was $19.331m, approximately flat year over year. Net R&D expense declined as Pfizer reimbursements increased. G&A expense rose 31%, mainly from professional fees and salaries. The company recorded a $0.272m inventory write-down during the period.
Cash, liquidity and capitalization
- Cash and cash equivalents were $44.054m at June 30, 2011, up from $35.900m at December 31, 2010. Current assets were $51.195m and current liabilities $20.282m.
- Six-month operating cash use was $8.811m, investing cash use was $4.093m, and financing cash provided was $20.909m. Financing was primarily the March public offering: 4.0m shares sold for $22.0m gross proceeds and approximately $20.590m net proceeds; option exercises provided additional cash.
- Total liabilities were $80.591m, including $60.198m of current and long-term deferred revenue. The balance sheet reports a $4.452m long-term payable; the filing text does not clearly characterize it as interest-bearing debt. No other conventional borrowings are identified in the supplied filing text.
- Capital deficiency was $8.703m. Management estimated existing cash would fund planned activities for approximately 15 months, subject to assumptions and possible unexpected costs. Manufacturing-facility expansion was estimated to cost approximately $25m.
Business developments, outlook and risks
- The FDA issued a Complete Response Letter for taliglucerase alfa in February 2011, citing requests for additional clinical-trial data and chemistry, manufacturing and controls information. It did not request additional clinical studies. The company reported a May FDA meeting and said it submitted its response in July in the MD&A; another passage says August. The FDA’s review classification and timing were unknown, and approval was not assured.
- The company reported final top-line results in July 2011 from the 26 adult participants in the taliglucerase switch-over study; pediatric enrollment remained open. The filing also described applications submitted to foreign regulators and successful manufacturing-facility audits in Israel and Brazil.
- The Pfizer agreement grants Pfizer exclusive worldwide development and commercialization rights outside Israel. Protalix retained Israeli rights, shares collaboration profits and expenses 40%/60%, and may receive up to $50m in additional regulatory milestone payments. The Brazil short-term supply agreement’s deliverables had been supplied; discussions on a possible longer-term arrangement were ongoing, without assurance of an agreement.
- Management expected substantial operating losses and R&D spending to continue. Future financing may be needed; no future funding commitments were disclosed. Additional equity could dilute shareholders, while debt or collaboration financing might impose restrictions or require relinquishing rights.
- Key risks include FDA or foreign regulatory delay or rejection, clinical-trial outcomes and enrollment, manufacturing and commercialization execution, competition, reimbursement, financing needs, and currency exposure. The company reported no material legal proceedings or off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the FDA response to the CRL was submitted in July or August 2011, and the FDA’s review classification, timetable and subsequent decision.
- The amount and potential effect of Pfizer’s Brazil-related sales-return allowance, including whether vials were replaced or the allowance reversed.
- Cash runway against operating needs and the estimated $25m facility expansion, including whether additional financing will be required.
- Progress and economics of foreign regulatory applications, the possible Brazil long-term supply agreement, and development milestones for other pipeline candidates.