Protalix Biotherapeutics, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Unaudited results; dollar amounts below are in millions unless stated otherwise.
Business context
Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx platform. Taliglucerase alfa is marketed as Elelyso outside Brazil and as Uplyso in Brazil. Under its amended Pfizer agreement, Pfizer holds global Elelyso rights except in Brazil; Protalix retains Brazilian rights and manufactures drug substance for Pfizer. The pipeline includes PRX-102 for Fabry disease, PRX-110 for cystic fibrosis, and oral anti-TNF candidate OPRX-106.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $1.769 | $1.336 | $2.448 | $3.028 |
| Gross profit / (loss) | $0.094 | $1.111 | $0.250 | $2.521 |
| Gross margin | 5.3% | 83.2% | 10.2% | 83.3% |
| Net R&D expense | $7.819 | $4.694 | $13.844 | $9.666 |
| Operating loss | $9.931 | $5.584 | $17.795 | $10.968 |
| Net loss | $10.853 | $5.071 | $19.451 | $11.043 |
| Loss per share | $0.11 | $0.05 | $0.20 | $0.12 |
Q2 revenue rose 32%, mainly from increased drug-substance sales to Pfizer. First-half revenue declined 19%. Gross profit fell sharply as cost of revenues increased; the filing attributes much of the year-over-year cost increase to costs classified in discontinued operations in 2015. First-half net R&D expense increased 43%, primarily due to development materials and clinical-trial costs. Management expects R&D to remain the company’s primary expense.
Cash and cash equivalents were $54.626 at June 30, down from $76.374 at year-end 2015. First-half operating cash use was $21.317, versus $11.767 in 2015; investing cash use was $0.659. Accounts receivable and other assets increased $4.952, contributing to operating cash use. Current assets were $67.645 and current liabilities $11.460. Total liabilities were $86.840, including $68.017 of convertible notes and a $4.301 promissory note; shareholders’ equity was a deficit of $7.976. Convertible notes’ disclosed fair value was approximately $45.9.
Material changes, outlook and risks
- First-half losses and operating cash use increased substantially year over year, while cash declined by $21.748.
- Protalix initiated Phase III trials of PRX-102 in June 2016. In July, after the quarter, the first patient was dosed in the PRX-110 Phase II trial. Management expected to start a Phase II OPRX-106 trial shortly.
- Management believed available cash would fund planned development and spending for at least 12 months, but cautioned that assumptions could change and additional financing might be needed sooner. No external funding commitments were in place.
- Fiocruz purchases of Uplyso remained significantly below contractual milestones. Protalix said it could terminate the Brazil agreement but was continuing supply while discussing compliance options.
- Protalix’s ten-year drug-substance supply commitment to Pfizer carries potential substantial financial penalties for failure to meet supply obligations. Other risks include clinical and regulatory uncertainty, financing needs, competition, and debt repayment or refinancing. No material change to previously disclosed risk factors was reported.
- The company reported no material legal proceedings or off-balance-sheet arrangements. Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Cash runway assumptions, projected clinical-trial spending, and the timing or need for additional financing.
- Fiocruz’s purchase obligations, Protalix’s options under the Brazil agreement, and the commercial outlook for Uplyso in Brazil.
- Production capacity and compliance with Pfizer supply commitments, including potential penalties for disruption.
- PRX-102, PRX-110, and OPRX-106 clinical progress, costs, and regulatory milestones.
- Convertible-note terms and repayment or refinancing requirements, alongside the reported carrying amount and fair value.