Pluristem Therapeutics Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2013, the first quarter of fiscal 2014 (unaudited). The filing reports U.S. dollars in thousands unless otherwise stated. Pluristem develops placenta-derived cell therapies and reported minimal licensing-related revenue, not product sales.
Financial performance and position
- Revenue: $95,000, down 51% from $195,000 a year earlier. Revenue was entirely from the United Therapeutics agreement.
- Profitability: Gross profit was $92,000 (about 97% gross margin), versus $189,000. Operating loss was $4.860 million, compared with $4.190 million; net loss was $4.755 million, versus $3.995 million. Basic and diluted loss per share was $0.08 in both periods.
- Costs: Net R&D expense rose 16% to $3.123 million; reported R&D participation from the Office of the Chief Scientist (OCS) and others increased to $2.374 million from $1.050 million. General and administrative expense increased 9% to $1.829 million.
- Cash flow: Operating activities used $5.095 million, versus $3.522 million. Investing activities provided $4.182 million, largely reflecting $7.132 million withdrawn from short-term deposits, partly offset by $4.861 million invested in marketable securities. Financing provided $509,000 from warrant exercises. Cash and cash equivalents fell $404,000 during the quarter to $8.603 million.
- Liquidity and balance sheet: Current assets were $52.468 million and current liabilities $5.731 million, yielding working capital of $46.737 million. Cash, short-term bank deposits and marketable securities totaled $48.666 million; some cash and deposits were restricted. Total assets were $65.483 million and stockholders’ equity $54.791 million. Accumulated deficit was $91.657 million. The filing does not identify material interest-bearing debt.
- Share count: 59.853 million shares were outstanding at September 30; 59.884 million at October 29, 2013.
Changes and notable developments
- Net loss increased by $760,000 year over year, reflecting lower revenue and higher operating expenses. Net R&D spending increased with greater in-house activity, clinical-trial costs, staffing and depreciation. The company cited a 51-employee increase versus September 2012.
- Revenue declined after the company extended the estimated United Therapeutics development period from 6.5 to 11.5 years; the related license fee is recognized straight-line over that period.
- The FDA lifted, on September 16, 2013, a clinical hold on the U.S. Phase II intermittent claudication study. The hold had followed a serious allergic reaction requiring hospitalization.
- In June 2013, Pluristem signed an exclusive South Korea license and commercialization agreement with CHA Bio&Diostech for two indications. If specified conditions are met, Pluristem agreed to issue CHA 2.5 million shares in exchange for CHA shares valued at approximately $10 million based on the agreement’s stated reference price. Clinical trials depend on regulatory approvals and would be funded by CHA; commercialization would involve a proposed 50/50 joint venture.
- OCS grant approval was received in August, causing $2.374 million of participation to be recognized in the quarter, including amounts attributable to the prior nine months. OCS grants carry royalties of 3%–5% on qualifying future sales until grant amounts plus interest are repaid.
Outlook, risks and contingencies
- Management said existing cash was expected to fund operations for at least 12 months, while also stating that cash needs would rise and additional funding might be needed before operations generate meaningful cash flow. Funding sources include securities issuances, licensing agreements and grants.
- Management did not expect product-sale revenue in the next 12 months and said products would likely not be ready for sale for at least three years, if at all. Near- and medium-term licensing revenue was expected to be unlikely to exceed operating costs.
- The company has sustained losses since inception and expects losses to continue. Development, clinical-trial and regulatory outcomes, grant funding, licensing milestones and the ability to raise capital are material uncertainties. The filing refers investors to the risk factors in the June 30, 2013 Form 10-K.
- Marketable securities were available-for-sale; management reported no other-than-temporary impairment for the quarter. The company pledged an additional $325,000 of cash to secure hedging transactions, a credit line and bank guarantees. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the FDA hold remains lifted and what clinical, safety and regulatory progress has followed.
- The assumptions supporting the extended United Therapeutics development period and resulting revenue recognition.
- Whether the claimed 12-month funding runway remains adequate given operating cash use and the need for additional financing.
- OCS grant approval, timing and future participation levels, and any related repayment or royalty obligations.
- Whether CHA’s development-plan, regulatory and other conditions are met, including the contingent share exchange and proposed joint venture.
- Potential dilution from warrant and equity compensation activity; the reported share count had increased from 59.197 million at June 30, 2013.