Pluristem Therapeutics Inc. — Form 10-Q
Reporting period: Quarter and six months ended December 31, 2016 (second quarter of fiscal 2017). The company develops placenta-derived cell therapy candidates and reported no product revenue in the period. Amounts below are U.S. dollars; financial statement amounts are generally in millions unless noted.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2016 | Six months ended Dec. 31, 2016 | Prior-year comparable period |
|---|---|---|---|
| Revenue | $0 | $0 | $2.752 million and $2.847 million, respectively |
| Net loss | $6.610 million | $12.934 million | $3.962 million and $9.838 million, respectively |
| Net loss per share | $0.08 | $0.16 | $0.05 and $0.12, respectively |
| Operating cash used | Not separately presented | $9.699 million | $7.389 million for six months |
- Six-month net R&D expense was $10.200 million, up 8% year over year; general and administrative expense was $3.010 million, down 1%. No gross margin is meaningful for the current period because revenue was zero.
- At December 31, cash and cash equivalents were $7.334 million; marketable securities were $14.039 million; restricted cash and short-term deposits were $0.570 million. Management reported a broader cash position of approximately $21.373 million, excluding restricted funds.
- Current assets were $22.953 million and current liabilities $5.377 million, giving working capital of $17.576 million. Total liabilities were $7.185 million; the balance sheet reports no interest-bearing debt balance.
- Cash and cash equivalents increased $1.111 million during the six months. Investing activities provided $10.806 million, primarily from deposit withdrawals and securities sales/redemptions; financing activities provided $0.004 million.
Material changes and explanations
- Revenue fell to zero from $2.847 million for the prior six-month period and $2.752 million for the prior quarter. Those prior-period revenues related to recognition of the remaining United Therapeutics upfront payment after United terminated its license agreement in December 2015.
- Six-month net loss increased to $12.934 million from $9.838 million, reflecting the lack of the prior-year license revenue and higher net R&D spending, partly offset by improved financial income. Quarterly net loss also rose, to $6.610 million from $3.962 million.
- Net R&D costs rose mainly with clinical-study consultants, subcontractors, and materials, partly offset by higher IIA participation and lower stock-based compensation. Quarterly net R&D costs declined 3% year over year.
- Marketable securities declined to $14.039 million from $17.415 million at June 30, 2016. The company recorded $1.019 million of other comprehensive loss for the six-month period, primarily reflecting unrealized losses on available-for-sale securities.
Outlook, developments, and risks
- Management expects no product-sales revenue in the next 12 months and anticipates continued operating losses and increased cash needs. It said available funds, including proceeds from the January 2017 offering, are expected to fund operations for at least 12 months, but also said additional financing may be needed before operating cash flow materially reduces reliance on external funding.
- On January 25, 2017, after quarter-end, the company sold 14.082 million shares and warrants for 8.449 million shares. Gross proceeds were $17.250 million; net proceeds were approximately $15.958 million before other offering expenses. Warrants have a $1.40 exercise price and a five-and-a-half-year term, exercisable beginning six months after issuance.
- A proposed approximately $30 million investment by Innovative Medical was subject to definitive agreements and delayed amid Chinese outbound-investment policy uncertainty; clarification was expected in the first half of 2017. The proposed terms include substantial new shares and warrants, and potential investor governance and other rights.
- A binding term sheet with Sosei CVC contemplated a Japanese joint venture for PLX-PAD: Pluristem would hold 35% and contribute a perpetual Japan commercialization license for critical limb ischemia; Sosei’s fund and other investors were expected to invest approximately $11 million. Definitive agreements were planned by March 31, 2017.
- The company reported that UK, U.S. FDA, and German authorities had cleared the planned multinational Phase III PLX-PAD trial for critical limb ischemia; enrollment was anticipated in the first half of 2017. It also reported completion of enrollment in its 172-patient Phase II intermittent claudication trial after quarter-end and planned a Phase I PLX-R18 HCT trial.
- IIA grants are repayable through contingent royalties generally of 3%–4% on sales of products developed using funded technology. Grants received totaled approximately $24.461 million and royalties paid or accrued were $0.166 million, leaving a stated contingent royalty balance of $24.295 million plus applicable interest; payment depends on qualifying sales.
- Management noted risks typical of a development-stage biotech, including clinical and regulatory uncertainty, future financing needs, and dependence on grants, licensing, securities sales, and other funding. The filing states there are no off-balance-sheet arrangements.
Investor verification points
- Confirm the January 2017 offering’s final net proceeds and resulting dilution, including the potential effect of outstanding warrants.
- Track actual operating cash burn, liquidity runway, and whether the stated 12-month funding expectation remains supported by spending and financing needs.
- Verify whether the Innovative Medical investment reached definitive agreement and closed, and whether the Sosei Japan venture was established and funded.
- Monitor clinical-trial initiation, enrollment, outcomes, and regulatory milestones for PLX-PAD and PLX-R18; timelines and approvals remain uncertain.
- Assess the composition and valuation volatility of marketable securities, including the CHA Biotech investment, and the contingent IIA royalty obligation if products generate sales.