Protalix BioTherapeutics, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; filed May 9, 2016. Financial statement amounts are in U.S. dollars in thousands unless otherwise indicated. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx platform.
Key financial results
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Continuing-operations revenue | $679 | $1,692 |
| Gross profit | $156 | $1,410 |
| Gross margin | 約23% | 約83% |
| Net R&D expense | $6,025 | $4,972 |
| Selling, general and administrative expense | $1,995 | $1,822 |
| Operating loss | $(7,864) | $(5,384) |
| Net financial expense | $(662) | $(1,129) |
| Loss from continuing operations | $(8,526) | $(6,513) |
| Discontinued-operations income (loss) | $(72) | $541 |
| Net loss | $(8,598) | $(5,972) |
| Basic and diluted loss per share | $(0.09) | $(0.06) |
Cash and cash equivalents were $66.7 million at March 31, 2016, down from $76.4 million at year-end 2015. Operating cash use was $9.6 million, including $9.3 million for continuing operations; investing cash use was $0.3 million. The filing reports current assets of $76.3 million and current liabilities of $9.3 million. Long-term liabilities included $67.9 million of convertible notes and a $4.3 million promissory note. The convertible notes bear 4.5% interest and are due in 2018; interest paid in the quarter was $1.6 million.
Material changes and business developments
- Continuing revenue fell approximately 60% year over year, primarily because of lower product sales in Brazil. Cost of revenue rose 85%, contributing to a substantial decline in gross margin.
- Net R&D expense increased approximately 21%, principally due to higher materials costs. Management expected R&D to remain the company’s primary expense.
- Q1 2015 comparisons include discontinued-operation results from the former Pfizer collaboration. Under the October 2015 amended agreement, Pfizer acquired Protalix’s collaboration interest for $36 million, took global Elelyso rights and revenues outside Brazil, and assumed global expenses outside Brazil. Protalix retained the Brazilian rights and responsibilities and agreed to continue supplying drug substance to Pfizer.
- Shares outstanding were 99.8 million at March 31, 2016, compared with a weighted-average 99.7 million for Q1 2016.
Outlook, risks and other matters
- Management believed available cash and commitments would fund planned development activities for at least 12 months, while cautioning that additional funding could be needed sooner if assumptions change. No future external funding commitments were in place.
- Management expected to begin a Phase III PRX-102 Fabry disease trial in the first half of 2016, subject to completing the FDA special protocol assessment process. A Phase I/II trial was ongoing.
- For PRX-110 (AIR DNase), a Phase I study in healthy volunteers had begun; a patient proof-of-concept study was planned for mid-2016. For OPRX-106, Phase I had concluded with reported tolerability and biological activity; a proof-of-concept ulcerative colitis study was planned for mid-2016.
- Fiocruz purchases of Uplyso in Brazil remained below agreed milestones. Protalix had a right to terminate the agreement but was continuing supply and discussing compliance steps with Fiocruz.
- Protalix’s Pfizer supply commitment runs for an initial ten years, with possible extensions. Failure to meet supply commitments may result in substantial financial penalties. Other key risks include clinical and regulatory uncertainty, financing needs, and competition.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no material changes to internal control over financial reporting. Management judged disclosure controls effective as of quarter-end.
Important facts for investors to verify
- Whether the planned PRX-102 Phase III start and FDA protocol process proceeded as expected.
- Whether the planned PRX-110 and OPRX-106 proof-of-concept studies began, and what subsequent trial data showed.
- Fiocruz’s purchase performance, the status of the Brazil agreement, and the outlook for Brazilian sales.
- Pfizer supply performance and any resulting costs or penalties, alongside the company’s cash runway and financing requirements.
- The source and comparability of reported revenue: continuing-operation revenue excludes separately presented discontinued-operation activity.