Pluristem Therapeutics Inc. — FY2013 Form 10-K
Period clarification: The filing covers the fiscal year ended June 30, 2013, not a fiscal year ended in 2012. It also reports unaudited quarterly results, including the quarter ended June 30, 2013. Dollar amounts below are U.S. dollars; financial statement amounts are generally in thousands unless stated otherwise.
Business context and reporting period
Pluristem is a clinical-stage biotherapeutics company developing placenta-derived PLX cell therapies using proprietary three-dimensional manufacturing technology. Its candidates target peripheral artery and cardiovascular, orthopedic, pulmonary, and radiation-related conditions. The company had no product sales and depended on licensing revenue, financing, and research grants.
Financial results and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $679 | $716 |
| Gross profit | $659 | $695 |
| Research and development, net of grants and participation | $17,233 | $9,158 |
| General and administrative expenses | $5,649 | $6,568 |
| Operating loss | $(22,223) | $(15,031) |
| Financial income, net | $1,068 | $237 |
| Net loss | $(21,155) | $(14,794) |
| Basic and diluted loss per share | $(0.38) | $(0.34) |
| Net cash used in operations | $(16,887) | $(3,275) |
Gross margin was approximately 97% in both years, but revenue was small relative to operating costs. Net R&D expense rose 88%, mainly from increased clinical-trial activity, payroll, laboratory materials, consultants, and subcontractors; the company added 46 employees since June 30, 2012. Lower G&A expense partly offset this increase. Financial income rose primarily due to hedging gains and exchange-rate movements.
At June 30, 2013, current assets were $55.1 million and current liabilities were $5.9 million, yielding working capital of $49.2 million and a current ratio of about 9.3. Cash and cash equivalents were $9.0 million; short-term bank deposits were $31.4 million and marketable securities were $13.4 million. Total liabilities were $10.9 million; the filing does not identify material borrowings. The company reported an accumulated deficit of $86.9 million.
Investing activities used $19.8 million, including investments in deposits and securities and $4.3 million for equipment and facility construction. Financing activities provided $36.3 million, including $34.1 million of net proceeds from the September 2012 public offering. Cash and cash equivalents decreased $0.4 million for the year, despite the substantial operating cash use, partly because of financing and movements among cash, deposits, and investments.
For the quarter ended June 30, 2013, revenue was $95,000 and net loss was $6.99 million, or $0.12 per share. The prior-year June quarter reported revenue of $101,000 and net loss of $4.14 million.
Material developments and changes
- The FDA placed the U.S. Phase II intermittent claudication study on clinical hold in June 2013 after a serious allergic reaction requiring hospitalization. The company suspended the study in the United States and Europe and subsequently put the German study on hold while it pursued further analysis and risk-minimization measures.
- The hold extended the estimated United Therapeutics development period from 6.5 years to approximately 11.5 years. As a result, recognized upfront-license revenue declined, and management revised expected annual revenue recognition from $779,000 to $379,000.
- In September 2012, Pluristem raised $34.1 million net through an offering of shares and warrants. It also had an at-the-market sales agreement permitting up to $95 million of share sales; no shares had been sold under that agreement by the filing date.
- Pluristem signed a South Korea license and commercialization agreement with CHA in June 2013. Clinical studies are at CHA’s expense and subject to regulatory approval. A proposed equal joint venture would market approved products. Pluristem’s 2.5 million-share exchange consideration is conditional on the clinical hold being lifted and agreement on a development plan.
- A new cGMP manufacturing facility began operating in February 2013. Comparability and approval runs were expected during calendar 2013; the filing does not establish that commercial-scale regulatory approval had been obtained.
Outlook, risks, and unusual items
Management expected no product-sales revenue in the next 12 months and said products were unlikely to be ready for sale for at least three years, if at all. It expected R&D to remain the primary expense, anticipated increasing cash needs, and stated that additional funding may be needed. Management nevertheless believed existing cash and liquidity were sufficient to fund operations for at least 12 months.
In August 2013, after year-end, the Israeli Office of the Chief Scientist approved a NIS 26.11 million grant (approximately $7.2 million) for R&D expenses covering January–December 2013. It was not included in the June 30, 2013 financial statements. OCS-supported technology is subject to Israeli know-how transfer restrictions, and grant repayment through royalties is contingent on sales.
Key risks include clinical and regulatory failure or delay, the unresolved FDA hold, dependence on external financing and equity issuance, uncertain collaboration outcomes, manufacturing and supplier execution, intellectual-property challenges, foreign-exchange exposure, and the concentration of facilities and personnel in Israel. The company reported no legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Current FDA status and conditions for lifting the clinical hold, and the impact on enrollment, trial timelines, and development costs.
- Actual cash runway, operating cash burn, use of the approved OCS grant, and whether further equity financing or ATM sales occurred after the filing.
- Progress on the CHA development plan and satisfaction of the conditions for the proposed share exchange and South Korea trials.
- Manufacturing comparability and regulatory status of the new facility, and whether it can support planned clinical programs.
- Current milestones, partner activity, and any changes to Pluristem’s stated expectation of no product-sales revenue in the near term.