Business context and reporting period
Pluristem Therapeutics Inc. (Nasdaq: PSTI) is a clinical-stage biotechnology company developing placenta-derived cell therapies. This is its unaudited Form 10-Q for the quarter ended March 31, 2019—the third quarter of fiscal 2019, not calendar 2018 Q3. Financial figures below are in U.S. dollars; “m” means millions.
Financial performance and position
| Metric | Three months ended Mar. 31, 2019 | Nine months ended Mar. 31, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | Nil | $0.054m | $0.050m for nine months; nil for three months |
| Net loss | $10.078m | $27.547m | $1.531m and $17.145m, respectively |
| Net loss per share | $0.09 | $0.24 | $0.01 and $0.16, respectively |
| Operating loss | $10.300m | $27.601m | $9.048m and $24.955m, respectively |
| Net R&D expense | $7.827m | $20.847m | $6.382m and $16.697m, respectively |
| G&A expense | $2.473m | $6.806m | $2.666m and $8.349m, respectively |
| Operating cash flow | $22.780m used in nine months | $15.594m used in nine months |
Nine-month gross profit was $0.052m, a reported gross margin of approximately 96%; the amount is immaterial relative to operating costs, and there was no quarterly revenue. Net loss widened mainly because of higher R&D expense and sharply lower financial income. The prior-year period included gains associated with sales of marketable securities; 2019 financial income was $0.054m for nine months versus $7.810m in 2018.
At March 31, cash and cash equivalents were $9.535m and short-term bank deposits were $1.002m; management described these together as a $10.537m cash position. Current assets were $13.196m and current liabilities $8.247m, for working capital of $4.949m and a current ratio of about 1.6. Total assets were $18.731m and stockholders’ equity $8.627m. The balance sheet reports no conventional interest-bearing debt; total liabilities were $10.104m. Restricted cash and deposits are not all freely available.
Investing activities provided $19.685m in the nine months, primarily from withdrawals of short-term deposits. Financing activities provided $3.825m, including $3.710m net equity proceeds. Cash, cash equivalents and restricted cash increased by $0.730m over the period. The company issued 3.724m shares through equity sale agreements during the nine months; 119.320m shares were outstanding at March 31.
Material changes and developments
- Nine-month net R&D expense rose 25% year over year. Management cited clinical-study subcontractors and materials, lower IIA participation, and higher stock-based compensation; increased Horizon 2020 participation partly offset the rise.
- Nine-month G&A expense fell 18%, principally due to lower stock-based compensation and corporate activity expenses.
- On April 8, 2019, after quarter-end, the company raised $20.0m gross in a public offering of 28.571m shares and warrants for an equal number of shares, plus $1.0m gross in a registered direct offering of 1.429m shares. Combined net proceeds were $19.467m. The five-year warrants have a $0.70 exercise price.
- Shares outstanding were 149.788m as of May 2, 2019, reflecting post-quarter equity issuance. Further potential dilution includes the April warrants and shares sold under the company’s ongoing sales agreement.
Outlook, risks and contingencies
Management said the company does not expect significant product-sale revenue in the next 12 months; near- and medium-term licensing revenue, if any, is unlikely to exceed operating costs. It expects liquidity available at March 31 plus the April offerings to fund operations into the beginning of fiscal Q4 2020. This is an estimate, not a guarantee. The company says it will need additional financing to support clinical development and commercialization, and may implement cost reductions if it cannot raise sufficient capital. It identifies additional capital, licensing deals and grant funding as key dependencies and warns that failure to obtain funding could threaten its viability.
Clinical execution remains a material risk. Pluristem reported two ongoing pivotal Phase III PLX-PAD trials: critical limb ischemia (CLI) and muscle recovery after hip-fracture surgery. It expected CLI follow-up completion in Europe in the first half of 2020 and in the U.S. in the first half of 2021, and hip-fracture trial follow-up in the second half of 2020; results were expected after follow-up. In April 2019, it reported enrollment above 50% in the CLI study, allowing an interim efficacy analysis after one-year follow-up under the EMA pilot project. For PLX-R18, it expected to initiate an acute radiation syndrome pivotal trial in the second half of 2019, conditional on receiving a U.S. government contract.
Other relevant developments include FDA Orphan Drug Designation for PLX therapy for graft failure and incomplete hematopoietic recovery, and initiation of an FDA-approved expanded-access program for certain CLI patients. The Chart Industries thawing-device license had generated no royalties as commercial sales had not begun by March 31. The company reported no off-balance-sheet arrangements and concluded disclosure controls were effective.
Contingent obligations include royalties on future sales from IIA-funded technology: grants received totaled approximately $27.096m, with $0.170m paid or accrued and a stated contingent royalty balance of $26.926m, excluding applicable interest. Other government marketing grants also carry sales-based royalty terms. These obligations are generally contingent on qualifying sales.
Important facts for investors to verify
- Whether the April 2019 financing and subsequent share count provide sufficient runway beyond management’s estimate, and the dilution that could result from warrants and further equity sales.
- Actual cash burn versus the $22.780m nine-month operating cash use, including the effect of grants, trial spending and any cost reductions.
- Enrollment, interim-analysis timing and results for both Phase III trials, plus regulatory and funding milestones for PLX-R18.
- Whether licensing, grant funding or product commercialization produces meaningful revenue; reported revenue to date was negligible and largely from research-use cell sales.
- The terms and potential future impact of conditional IIA and other grant-related royalties, and whether the thawing-device agreement begins generating royalties.