Protalix BioTherapeutics, Inc. — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011. Financial amounts below are in U.S. dollars; statements present amounts in thousands unless stated otherwise. Protalix is a development-stage biopharmaceutical company using its ProCellEx plant-cell expression platform. Its lead candidate, taliglucerase alfa, is being developed for Gaucher disease; the company had no approved products generating significant product-sales revenue.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $1.132 million | $3.184 million | $6.024 million | $5.466 million |
| Gross profit | $0.677 million | $2.119 million | $1.149 million | $3.579 million |
| Net R&D expense | $7.918 million | $3.546 million | $23.508 million | $20.392 million |
| Operating loss | $8.767 million | $2.848 million | $27.673 million | $21.118 million |
| Net loss | $8.875 million | $2.474 million | $27.616 million | $20.470 million |
| Basic and diluted loss per share | $0.10 | $0.03 | $0.33 | $0.25 |
Reported gross profit reflects the company’s share of Pfizer collaboration results and cost of revenues. Revenue primarily comprises amortization of Pfizer’s $60 million upfront payment and $5 million milestone payment, plus product deliveries under the agreement.
- Quarterly change: Revenue fell 66% year over year. Net R&D expense rose 48%, and net loss increased to $8.875 million from $2.474 million. Management attributed higher quarterly R&D expense mainly to materials and consumables and the prior-year capitalization of certain Brazil-supply costs into inventory.
- Nine-month change: Revenue increased 10%, but net loss widened by about $7.1 million. The $3.745 million share of collaboration loss, versus $1.887 million a year earlier, was driven principally by Protalix’s 40% share of Pfizer’s allowance for potential returns/replacement of Brazil-supply vials; French ATU sales income partly offset it.
- Nine-month general and administrative expense increased 23% to $5.314 million, mainly due to higher salaries and professional fees. Financial income fell to $57,000 from $648,000; Q3 recorded $108,000 of financial expense, primarily associated with shekel depreciation against the dollar.
Cash, liquidity and capitalization
- At September 30, 2011, cash and cash equivalents were $34.564 million, versus $35.900 million at December 31, 2010. Current assets were $40.282 million and current liabilities $18.314 million, implying working capital of $21.968 million.
- Total assets were $60.829 million and total liabilities $78.182 million; reported capital deficiency was $17.353 million. Liabilities included $59.058 million of deferred revenue, current and long term, and a $4.738 million long-term payable. The filing does not identify conventional interest-bearing debt.
- For the first nine months, operating cash use was $16.958 million, compared with $30.433 million in 2010; investing cash use was $5.121 million, mainly property and equipment purchases. Financing provided $20.913 million, largely from the March 2011 stock offering. Cash declined by $1.336 million during the period.
- The March offering sold 4 million shares for net proceeds of approximately $20.590 million. Shares outstanding were approximately 85.624 million on November 1, 2011.
Business developments, outlook and risks
- The FDA issued a Complete Response Letter for taliglucerase alfa in February 2011, requesting additional clinical data from ongoing switchover and extension trials and CMC information on testing specifications and assay validation; it did not request a new clinical study. The FDA accepted the August 2011 resubmission as a Class 2 response, with a February 1, 2012 PDUFA date. Approval remained uncertain.
- Marketing applications had also been submitted to the Israeli Ministry of Health, EMA, Brazil’s ANVISA and Australia. France had granted temporary access for patients. The company reported successful manufacturing-facility GMP audits by Israeli authorities and ANVISA, and an FDA facility classification of acceptable.
- Management expected substantial operating losses and R&D spending to continue. The planned manufacturing-facility expansion was estimated to cost about $25 million in total and was intended to support roughly two-thirds of anticipated taliglucerase alfa market demand, if approved. The filing stated that the company had no commitments for future external funding.
- The company disclosed substantial doubt about its ability to continue as a going concern, dependent on regulatory approval or raising additional capital. It warned that financing might be unavailable or dilutive and that lack of funds could force delays, reductions or termination of programs.
- Other material uncertainties include FDA or foreign-regulator delays or rejection, clinical-trial and patient-enrollment risks, competition and orphan-drug exclusivity, Pfizer collaboration and commercialization execution, and whether Brazil supply discussions lead to a long-term agreement. A $363,000 inventory write-down was recorded in the first nine months. No material legal proceedings or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether the FDA accepted the CRL response and whether the February 1, 2012 action date led to approval, further requests or delay.
- Cash burn, projected runway, funding needs and the cost/timing of the approximately $25 million manufacturing expansion.
- Resolution and financial effect of the Brazil vial-return allowance, including any replacement deliveries or reversal.
- Pfizer collaboration economics, milestone eligibility and the timing and reliability of reported collaboration results.
- Progress of foreign marketing applications and other pipeline programs, alongside the company’s disclosed going-concern uncertainty.