Protalix Biotherapeutics, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Unaudited financial figures are in U.S. dollars, thousands, unless stated otherwise. Protalix develops recombinant therapeutic proteins using its ProCellEx platform; taliglucerase alfa is its commercial product.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $4,301 | $2,396 | $12,475 | $11,517 |
| Share of collaboration income | $1,545 | $1,311 | $3,084 | $2,259 |
| Gross profit | $3,500 | $1,909 | $8,774 | $6,300 |
| Net R&D expense | $4,053 | $6,105 | $14,637 | $17,134 |
| Operating loss | $2,807 | $6,208 | $12,122 | $18,123 |
| Net loss | $3,820 | $8,010 | $14,863 | $21,474 |
| Loss per share | $0.04 | $0.09 | $0.16 | $0.23 |
Gross profit includes collaboration income as a separate line item. On that combined basis, gross margin was approximately 60% in Q3 2015 versus 52% a year earlier, and 56% for the first nine months versus 46%. These are derived estimates.
- Q3 revenue rose 80%, primarily reflecting $1.3 million of Brazilian product sales. Nine-month revenue increased 8%, primarily due to a $0.8 million increase in Brazilian sales. Revenue also includes quarterly amortization of prior Pfizer upfront and milestone payments.
- Nine-month operating loss narrowed by $6.0 million year over year. Lower R&D and SG&A costs contributed; net R&D expense fell 15% and SG&A fell 14%. Q3 net R&D expense fell 34%, while SG&A rose about $0.2 million.
- Financial expense, net was $2.7 million for the nine months, mainly reflecting interest on 4.5% convertible notes; interest expense was $2.3 million for the period.
Liquidity, cash flow, and debt
- At September 30, cash and cash equivalents were $34.2 million, down from $54.8 million at year-end 2014. Current assets were $47.9 million and current liabilities $22.9 million (current ratio approximately 2.1).
- Nine-month operating cash use was $20.4 million, versus $24.4 million in 2014; investing cash use was $0.5 million and financing provided $0.5 million. Cash declined $20.5 million during the period.
- Convertible notes had a $67.8 million carrying value at September 30. The notes were issued with $69.0 million aggregate principal, bear 4.5% interest, and are due in 2018. The filing reports their fair value at approximately $45.5 million.
- Inventory was $6.3 million; the company recorded a $1.6 million inventory write-down during the nine months.
Business developments, outlook, and risks
- Subsequent Pfizer transaction: On October 12, 2015, after quarter-end, Protalix amended its Pfizer agreement and received $36.0 million for selling its collaboration interest in Elelyso. Pfizer assumed all Elelyso revenues and expenses outside Brazil; Protalix retained full Brazilian rights and responsibility. Protalix transferred its Israeli rights to Pfizer, continues to supply drug substance, and issued Pfizer a roughly $4.2 million promissory note due in October 2020, subject to conditions. The amendment removed Pfizer’s entitlement to annual Brazilian commercialization payments of up to $12.5 million. Separately, Pfizer purchased 5,649,079 Protalix shares for $10.0 million. These transactions were not reflected in September 30 cash or balance-sheet figures.
- Brazil: Fiocruz purchases remained significantly below agreed milestones, giving Protalix a right to terminate the supply and technology-transfer agreement. Protalix was continuing supply and discussing compliance options; approximately 10% of adult Gaucher patients in Brazil were treated with Uplyso. Protalix owes an agent 5% of net proceeds generated in Brazil under an agreement continuing for the duration of the Brazil Agreement.
- Pipeline and outlook: Management expected PRX-102 Phase I/II results during Q4 2015; a PRX-106 proof-of-concept study by early 2016; and a PRX-110 Phase I study in healthy volunteers in Q4 2015, followed by a patient proof-of-concept study in the first half of 2016. PRX-112 development was to focus on a new formulation during 2015. These are forward-looking expectations, not assured outcomes.
- Management stated that September 30 cash resources were expected to fund planned operations for at least 12 months, subject to assumptions and uncertainty. R&D was expected to remain the primary expense; additional financing could be needed, and may not be available on acceptable terms. The October Pfizer proceeds subsequently changed the company’s liquidity position.
- Key risks include clinical and regulatory setbacks, financing needs and 2018 note repayment/refinancing, dependence on Pfizer supply arrangements, and Fiocruz’s purchase obligations and Brazilian commercialization. The filing said there were no material changes to previously disclosed risk factors, no material legal proceedings, and disclosure controls were effective.
Important facts for investors to verify
- Cash runway and uses of the October $36.0 million payment and $10.0 million stock proceeds, including obligations and transaction conditions.
- Execution and economics of the amended Pfizer supply agreement, including future manufacturing obligations and Brazil-specific rights.
- Fiocruz purchase milestones, Protalix’s termination rights, and actual Brazilian sales and market uptake.
- Clinical trial progress, results, and timing for PRX-102, PRX-106, and PRX-110.
- Convertible-note terms, repayment or refinancing plans, and potential dilution from equity and convertible securities.