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 and six months ended December 31, 2014 (the company’s fiscal second quarter and first half of fiscal 2015). Financial amounts below are in U.S. dollars; financial-statement figures are in thousands unless noted.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2014 | Six months ended Dec. 31, 2014 |
|---|---|---|
| Revenue | $95 | $190 |
| Gross profit | $91 | $183 |
| Net R&D expense | $4,879 | $8,916 |
| General and administrative expense | $1,513 | $3,191 |
| Operating loss | $6,301 | $11,924 |
| Net loss | $6,245 | $12,156 |
| Basic and diluted loss per share | $0.09 | $0.17 |
| Operating cash used | Not separately provided | $9,026 |
- All reported revenue came from the United Therapeutics license agreement. The company reported no product sales and said it did not expect product-sale revenue within the next 12 months.
- At December 31, 2014, current assets were $47.1 million and current liabilities were $5.2 million, yielding working capital of $42.0 million. Cash and cash equivalents were $7.0 million; short-term deposits were $12.6 million; marketable securities were $25.7 million. Restricted cash and short-term deposits totaled $0.7 million.
- Total assets were $58.3 million, stockholders’ equity was $49.1 million, and accumulated deficit was $126.0 million. The balance sheet reports no conventional borrowings; total liabilities were $9.2 million, including deferred revenue, payables, and other obligations.
- For the six months, investing activities provided $10.7 million, mainly from deposit withdrawals and marketable-security proceeds; financing activities provided $0.8 million, including $0.5 million from a private placement. Cash and cash equivalents rose $2.5 million from June 30, 2014 to $7.0 million.
- Gross margin was approximately 96% for both the quarter and six-month period, but revenue was very small relative to operating costs.
Changes versus comparable prior periods
- Quarterly revenue was unchanged at $95,000; six-month revenue was unchanged at $190,000 versus the prior-year periods.
- Quarterly net loss improved to $6.2 million from $6.7 million, and loss per share improved to $0.09 from $0.11. Six-month net loss increased to $12.2 million from $11.5 million, although loss per share improved to $0.17 from $0.19, partly reflecting higher weighted-average shares.
- Net R&D expense rose 8% for the six months to $8.9 million, attributed to higher employee-related and stock-based compensation and lower OCS participation, partly offset by reduced materials and consultant costs. It fell 4% for the quarter to $4.9 million.
- G&A expense fell 16% for the six months to $3.2 million and 23% for the quarter to $1.5 million, primarily due to lower stock-based compensation, partly offset by higher salaries.
- Operating cash use increased to $9.0 million from $8.1 million for the six-month comparison. Comprehensive loss was $15.5 million, including a $3.4 million other comprehensive loss, primarily reflecting unrealized losses on available-for-sale securities. The company recorded no impairment charge on those securities.
Outlook, risks and notable items
- Management said existing cash was sufficient to fund operations for at least 12 months, while also warning that cash needs would increase and additional funding might be needed before operating cash flow could materially reduce reliance on existing resources. Potential funding sources include equity sales, licensing arrangements, grants, and sales of marketable securities.
- The company expects no product-sales revenue in the next 12 months and said products likely would not be ready for sale for at least three years, if at all. In the near and medium term, licensing revenue was expected to be unlikely to exceed operating costs.
- For 2015, management’s stated priorities included advancing clinical programs and pursuing potential accelerated regulatory pathways. The Phase II intermittent claudication trial had 23 active sites; recruitment was expected to be completed in 2015. United Therapeutics was expected to complete its Phase I pulmonary arterial hypertension trial. These are expectations, not guarantees.
- The company has incurred sustained losses, with a $126.0 million accumulated deficit. Clinical development, regulatory approval, financing availability, grant timing, foreign-exchange movements, and marketable-security values are material uncertainties. OCS grants carry contingent royalties of 3%–4% on qualifying product sales and related revenue, up to repayment of grants plus applicable interest; the reported contingent royalty obligation was $18.1 million, excluding LIBOR interest.
- In October 2014, the company raised $528,000 through a 200,000-share private placement, stated to support construction of new laboratories. It also issued 100,004 restricted shares to its laboratory contractor, subject to milestones. Shares outstanding were 70,494,863 at December 31, 2014; 70,528,240 were reported outstanding as of January 29, 2015.
- After the reporting period, on February 5, 2015, CFO and Secretary Boaz Gur-Lavie left by mutual agreement for personal reasons, with no reported disagreement. President and COO Yaky Yanay was appointed CFO and Secretary and nominated to the board.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing states there were no off-balance-sheet arrangements.
Key facts for investors to verify
- Whether the company can maintain the stated minimum 12-month funding runway, given operating cash use and dependence on external funding.
- Clinical-trial recruitment, results, timelines, and regulatory-pathway progress, particularly the intermittent claudication and pulmonary hypertension programs.
- The terms, timing, and potential value of future United Therapeutics and CHA-related milestones, licensing revenue, and commercialization rights.
- The composition, liquidity, and valuation exposure of marketable securities, including the large period unrealized loss and related foreign-exchange hedges.
- Potential dilution from future equity financing, warrants, options, restricted stock, and the company’s shelf registration capacity of up to $200 million.
- The amount and terms of OCS royalty obligations if qualifying products or related revenues are generated.