Pluri Inc. (Pluristem Therapeutics Inc.) — Form 10-Q
Business context and period: The filing covers the quarter ended December 31, 2018, Pluristem’s second fiscal quarter of fiscal 2019. The unaudited statements are consolidated and amounts below are in U.S. dollars. Pluristem is a pre-commercial biotechnology company developing placenta-derived cell therapies; reported revenue was from PLX cell sales for research use.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2018 | Six months ended Dec. 31, 2018 |
|---|---|---|
| Revenue | $50,000 | $54,000 |
| Gross profit | $48,000; approximately 96% gross margin | $52,000; approximately 96% gross margin |
| Net R&D expense | $6.256 million | $13.020 million |
| General and administrative expense | $2.123 million | $4.333 million |
| Operating loss | $8.331 million | $17.301 million |
| Net loss | $8.683 million; $0.07 per share | $17.469 million; $0.15 per share |
| Net cash used in operating activities | Not provided for the quarter | $16.773 million |
For comparison, the prior-year quarter and six-month periods had revenue of $50,000 and $50,000, respectively; net losses were $8.229 million and $15.614 million. Six-month operating cash use was $10.018 million in the prior-year period.
At December 31, 2018, cash and cash equivalents were $6.796 million, short-term deposits were $7.917 million, and reported cash plus short-term deposits totaled $14.713 million. Current assets were $18.354 million and current liabilities $7.234 million, yielding working capital of $11.120 million. Total assets were $24.303 million, stockholders’ equity $15.194 million, and accumulated deficit $233.166 million. The filing does not report conventional interest-bearing debt; liabilities shown are primarily payables, accruals, severance and other liabilities.
Cash, cash equivalents and restricted cash decreased by $1.796 million over the six months. Investing activities provided $12.910 million, principally from withdrawals of short-term deposits; financing activities provided $2.067 million, including $1.952 million net proceeds from ATM share sales. The company’s shares outstanding were 116.809 million at December 31, 2018 and 116.857 million at January 31, 2019.
Material changes and operating developments
- Six-month net R&D expense increased 26% year over year; quarterly net R&D expense increased 11%. Management cited clinical-study subcontractors, materials, payroll and lower IIA participation, partly offset by increased EU grant participation.
- G&A expense declined 24% for the six-month period and 27% for the quarter, mainly due to lower stock-based compensation and corporate activity expenses.
- Financial results shifted from net financial income to expense: six-month expense was $168,000 versus $293,000 income a year earlier; quarterly expense was $352,000 versus $238,000 income. Management attributed the change mainly to currency-hedge fair-value movements and lower prior-year income from marketable securities.
- In November 2018, Pluristem licensed worldwide manufacturing and marketing rights, excluding Greater China, for its cell-therapy thawing device to a Chart Industries subsidiary. Royalties begin only upon Chart’s first commercial sale.
- In February 2019, the company terminated its prior ATM agreement and entered a new agreement with Jefferies permitting up to $50 million of at-the-market share sales. Sales are optional and may dilute shareholders; Jefferies receives a 3% commission on sales.
Outlook, risks and contingencies
- Management said it does not expect product-sale revenue in the next 12 months; near- and medium-term revenue from licenses or technology is expected to be unlikely to exceed operating costs. The company expects increased cash needs and must secure additional liquidity to sustain commercialization, R&D and clinical trials.
- Management estimated that December 31 liquidity would support operations into the beginning of fiscal 2020’s first quarter. This depends on cash-flow assumptions and obtaining additional capital, licensing revenue and/or grants. The filing warns that failure to raise adequate funds would severely affect the company’s ability to remain viable; a cost-reduction plan is contemplated if financing is insufficient.
- Two pivotal Phase III PLX-PAD trials were underway. Management expected follow-up completion for the CLI study in Europe in the first half of 2020 and in the U.S. in the first half of 2021, and for the hip-fracture recovery study in the second half of 2020, with data expected shortly afterward. These are forward-looking estimates, not assured outcomes.
- For PLX-R18 in acute radiation syndrome, management said the program was ready for a pivotal trial and expected a trial to begin in the second half of 2019, conditional on receiving a U.S. government contract.
- IIA grant royalty obligations are contingent on sales: the filing reports approximately $27.096 million of cumulative grants and a $26.926 million contingent royalty balance, before applicable interest. Other grant-related royalties and collaboration obligations may also arise under specified circumstances.
- The company reported $1.285 million of cash and deposits pledged for derivatives, a credit line and bank guarantees. Foreign-currency options had a $348,000 fair-value liability at December 31, 2018. No off-balance-sheet arrangements were reported.
- Clinical development, regulatory approval, grant funding, commercialization, financing availability and foreign-exchange movements are material uncertainties. The company stated that historical research and trial results do not guarantee future results.
Important facts for investors to verify
- Whether new equity sales, grants, licensing agreements or other funding are sufficient to meet the stated liquidity needs and support the projected operating runway.
- Actual enrollment, follow-up and data-release timing for both PLX-PAD Phase III trials, and whether the PLX-R18 government contract and trial proceed as anticipated.
- Progress toward commercial sales under the Chart thawing-device license and the timing and potential scale of any resulting royalties.
- Future operating cash burn and the drivers of rising R&D costs, including clinical spending and grant participation.
- Potential dilution from the Jefferies offering facility and the company’s use of its shelf registration capacity.