PluriStem Therapeutics Inc. — Form 10-Q Summary
Business context and period. PluriStem develops off-the-shelf placental cell therapies for ischemic and inflammatory conditions. This unaudited report covers the three months ended September 30, 2014, the first quarter of fiscal 2015; comparisons are with the three months ended September 30, 2013. Financial figures below are in U.S. dollars, thousands, unless noted.
Key financial metrics
| Metric | Quarter ended Sep. 30, 2014 | Comparable 2013 quarter |
|---|---|---|
| Revenue | $95 | $95 |
| Gross profit / gross margin | $92 / approximately 97% | $92 / approximately 97% |
| Net R&D expense | $4,037 | $3,123 |
| General and administrative expense | $1,678 | $1,829 |
| Operating loss | $(5,623) | $(4,860) |
| Financial income (expense), net | $(288) | $105 |
| Net loss / loss per share | $(5,911) / $(0.09) | $(4,755) / $(0.08) |
| Operating cash used | $(3,456) | $(5,095) |
- Liquidity at September 30, 2014: current assets were $52,292 and current liabilities $5,985, yielding reported working capital of $46,307. Cash and cash equivalents were $5,662; short-term bank deposits $14,494; restricted cash and short-term deposits $5,083; and marketable securities $25,898.
- Balance sheet: total assets were $63,830, total liabilities $10,135, and stockholders’ equity $53,695. Accumulated deficit was $119,745. The filing does not provide a clear amount for interest-bearing debt; no borrowing balance is separately presented.
- Cash movements: investing activities provided $4,516, primarily from withdrawals of short-term deposits, while financing activities provided $109 from warrant exercises. Cash and cash equivalents increased $1,169 during the quarter.
Changes versus the prior comparable period
- Revenue was unchanged at $95 and came from the United Therapeutics agreement.
- Net R&D expense rose 29% to $4,037, reflecting increased internal R&D activity, higher salaries and stock-based compensation, and lower OCS participation, partly attributed to grant-approval timing.
- G&A expense fell 8% to $1,678, mainly due to lower stock-based compensation, partly offset by higher salaries.
- Operating loss widened to $5,623 from $4,860; net loss widened to $5,911 from $4,755. Financial results shifted from $105 of net income to $288 of net expense, which management attributed mainly to foreign-exchange effects and greater losses on hedging instruments.
- Cash used in operations declined to $3,456 from $5,095. Cash and cash equivalents at quarter-end were $5,662, versus $8,603 at September 30, 2013.
- Other comprehensive loss was $3,688, largely reflecting unrealized losses on available-for-sale securities; total comprehensive loss was $9,599. The company recorded no impairment charge on its marketable securities.
Outlook, risks and notable items
- Management expects no product-sales revenue in the next 12 months and said products are unlikely to be ready for sale for at least three years, if at all. It expects near- and medium-term revenue mainly from licenses and related payments, which are unlikely to exceed operating costs.
- The company expects cash needs to increase and may need additional funding before operating cash flows materially reduce reliance on existing resources. Management nevertheless believes available cash is sufficient for at least the next 12 months. Funding sources include securities issuances, licensing payments, OCS grants, and potential sales of marketable securities.
- PluriStem reported $3,281 received from the OCS toward R&D costs during the quarter. OCS grants carry contingent royalties of 3%–4% on qualifying product sales and related revenues until grants, dollar-linked and with applicable interest, are repaid. The disclosed contingent royalty liability was $17,349, excluding LIBOR interest; payment depends on qualifying revenues.
- The United Therapeutics agreement covers development and commercialization of a PLX-cell product for pulmonary hypertension. It includes potential regulatory milestone payments and cost reimbursements, but United may terminate without cause. The company recognizes the license fee over an estimated development period.
- Under the CHA agreement, CHA has South Korean rights for specified PLX-PAD indications and bears agreed clinical-trial costs. A South Korean Phase II trial in intermittent claudication had regulatory approval as of the filing. The parties’ investment includes PluriStem’s holding of CHA shares, whose valuation contributed to marketable-security volatility.
- Foreign-currency hedges included approximately $2,300 of future NIS payroll exposures, settling by February 2015, and a $11,000 notional forward contract hedging the Korean-won-denominated CHA investment. Derivative fair values and currency movements affected reported results and comprehensive income.
- During the quarter, warrant exercises and employee option exercises increased shares outstanding; 949,210 warrants were cashlessly exercised, and cash warrant exercises generated $109. The company terminated its ATM sales agreement on September 11, 2014. It retained an effective shelf registration allowing offerings of up to $200 million.
- The company reported no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether management’s stated 12-month liquidity runway remains supportable given continuing operating losses, expected rising cash needs, and reliance on future financing and grants.
- The timing, amount, and conditions of future OCS participation and any additional licensing or collaboration proceeds.
- Clinical-trial progress, regulatory milestones, and partner decisions under the United Therapeutics and CHA agreements, including termination provisions.
- Marketable-security and derivative valuation changes, currency exposures, and the potential effects on reported comprehensive results and liquidity.
- Potential dilution from the shelf registration, outstanding warrants and equity awards; shares outstanding were 69,585,642 at September 30, 2014 and 70,078,391 at October 27, 2014.