Protalix BioTherapeutics, Inc. — Q2 2015 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2015. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx platform. Its marketed product, taliglucerase alfa, is sold as Elelyso in the United States and Israel and Uplyso in Brazil; Pfizer commercializes it in most other markets. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $3.782 | $2.425 | $8.174 | $9.121 |
| Company share in collaboration | $0.834 | $0.261 | $1.539 | $0.948 |
| Gross profit | $2.577 | $1.081 | $5.274 | $4.391 |
| Net R&D expense, after grants and reimbursements | $4.957 | $4.962 | $10.584 | $11.029 |
| Selling, general and administrative expense | $2.092 | $1.566 | $4.005 | $5.277 |
| Operating loss | $(4.472) | $(5.447) | $(9.315) | $(11.915) |
| Net loss | $(5.071) | $(6.119) | $(11.043) | $(13.464) |
| Loss per share, basic and diluted | $(0.05) | $(0.07) | $(0.12) | $(0.15) |
Reported gross profit was approximately 56% of revenue plus collaboration income in Q2 2015 and 54% for the first half; the comparable 2014 figures were approximately 40% and 44%. These are calculated from reported gross profit divided by revenue plus collaboration income.
Liquidity, cash flow and debt
- Cash and cash equivalents were $43.238 million at June 30, 2015, down from $54.767 million at December 31, 2014. Current assets were $53.868 million and current liabilities $25.519 million, implying working capital of $28.349 million.
- First-half operating cash use was $11.767 million, compared with $14.859 million in the first half of 2014. Investing activities used $0.347 million; option exercises provided $0.534 million. Cash decreased by $11.529 million.
- Convertible notes had a $67.670 million carrying value at June 30. The filing describes $69 million aggregate principal of 4.5% notes due 2018; first-half interest paid was $1.553 million. The notes’ disclosed fair value was approximately $53.8 million.
- Total liabilities were $131.091 million, against total assets of $65.954 million; capital deficiency was $65.137 million.
Changes, outlook and risks
- Q2 revenue increased 56% year over year, primarily due to $1.3 million of Brazilian product sales. For the first half, revenue declined 10%, mainly from lower product deliveries to Pfizer and lower Brazilian sales. The company’s collaboration share rose to $0.834 million in Q2 and $1.539 million for the half.
- First-half net loss improved by $2.421 million year over year. Management attributed lower net R&D spending mainly to lower salary costs, including the absence of prior-year bonuses and the effect of Israeli shekel depreciation; lower Pfizer reimbursements partly offset this. First-half SG&A also declined, while Q2 SG&A rose, including from share-based compensation and marketing costs.
- The company recorded an approximately $0.770 million inventory write-down during the first half. Management said lower first-half cost of revenue versus 2014 primarily reflected a decrease in inventory write-downs.
- Management said existing cash was expected to fund planned activities and capital needs for at least 12 months, while cautioning that assumptions could change and additional financing might be needed. No external funding commitments were in place. R&D, particularly PRX-102 trials and advancement of other candidates, was expected to remain the principal expense.
- Fiocruz failed to meet the July 31, 2015 requirement to purchase an additional approximately $30 million of Uplyso, giving Protalix a right to terminate the Brazil Agreement. Protalix was continuing supply and discussing compliance options; termination would return transferred technology rights to Protalix. The agreement also carries purchase commitments, and a later manufacturing and royalty arrangement is conditional on technology transfer and Brazilian regulatory approval.
- Management expected second interim PRX-102 results and longer-term data in Q3 2015 and final dose-group results in Q4 2015; a PRX-106 proof-of-concept study was expected around year-end; and a PRX-110 Phase I trial was expected in Q4, followed by a patient study by early 2016. These are expectations, not assurances.
- Other disclosed risks include commercialization and product acceptance, regulatory approvals, clinical development and funding needs, dependence on Pfizer and Fiocruz, and repayment or refinancing of the 2018 notes. The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether Fiocruz meets its purchase obligations and whether Protalix continues, renegotiates or terminates the Brazil Agreement.
- Cash burn, revenue and collaboration economics, and whether the stated minimum 12-month runway remains supportable.
- Progress and results of PRX-102, PRX-106 and PRX-110 programs against the timelines described.
- Terms, maturity and refinancing or repayment capacity for the 4.5% convertible notes due 2018.
- Commercial performance of taliglucerase alfa by geography and the impact of product write-downs and partner reimbursements on reported margins.