Protalix BioTherapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; unaudited. Amounts are U.S. dollars. Financial statement amounts are in millions unless otherwise noted.
Business context and developments
Protalix develops and commercializes recombinant therapeutic proteins using its plant-cell ProCellEx platform. Its portfolio includes approved taliglucerase alfa and investigational candidates, led by PRX-102 for Fabry disease. Chiesi is the development and commercialization partner for PRX-102.
- The PRX-102 BLA was submitted to the FDA in May under the Accelerated Approval pathway. On July 28, the FDA informed Chiesi the application was filed for review and would not receive a Refuse to File notice; this is not an approval.
- The BRIDGE study reported improved mean annualized eGFR slope after patients switched from Replagal to PRX-102: -1.16 versus -5.90 mL/min/1.73m²/year. Two of 22 participants withdrew early following hypersensitivity reactions; 20 completed treatment.
- The BRIGHT study’s last patient visit occurred in July 2020. The company reported that COVID-19 had not materially affected trials to date, though it adjusted trial operations and employee schedules.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $10.967 | $12.247 | $32.613 | $22.686 |
| Goods revenue | $3.648 | $3.430 | $8.679 | $6.960 |
| License and R&D services revenue | $7.319 | $8.817 | $23.934 | $15.726 |
| Cost of goods sold | $1.827 | $2.695 | $5.253 | $4.740 |
| R&D expense, net | $9.186 | $13.323 | $19.526 | $25.021 |
| SG&A expense | $2.194 | $2.068 | $5.381 | $4.298 |
| Operating income (loss) | $(2.240) | $(5.839) | $2.453 | $(11.373) |
| Net loss | $(4.150) | $(7.743) | $(2.483) | $(15.007) |
| Loss per share, basic and diluted | $(0.13) | $(0.52) | $(0.12) | $(1.01) |
- Q2 revenue fell about 10% year over year, principally as license/R&D revenue declined 17%; goods revenue rose 6%. The company attributed lower license/R&D revenue to PRX-102 trial completions and lower BALANCE study costs.
- Six-month revenue increased about 44%. License/R&D revenue included a $6.7 million increase from a revised estimate of total costs expected under the Chiesi agreements. Brazil goods sales increased $1.8 million, partly offset by a $0.1 million decline in Pfizer sales.
- Six-month operating income included the benefit of higher collaboration revenue and lower R&D expense. Net loss nevertheless reflected $4.936 million of net financial expense, including increased convertible-note-related expense.
- Q2 implied gross profit (revenue less cost of goods sold) was $9.140 million, or about 83% of revenue; this includes license/R&D revenue and is not a product-only margin.
Cash, liquidity and debt
- At June 30, cash and cash equivalents were $4.843 million; short- and long-term bank deposits totaled $35.172 million. Accounts receivable was $5.262 million and inventory was $11.065 million.
- Six-month operating cash use was $14.952 million, investing cash use $35.347 million (primarily bank deposits), and financing cash provided $37.343 million. Cash and cash equivalents decreased $12.949 million to $4.843 million.
- The March private placement issued 17.6 million shares and warrants for an equal number of shares. The filing reports approximately $41.3 million in committed net proceeds; cash-flow financing proceeds were $37.343 million, with a separate $4.0 million note receivable recorded in connection with the issuance.
- Outstanding 7.50% convertible notes due November 2021 had $57.9 million aggregate principal and a $52.622 million carrying value. They are secured by a lien on company assets. The indenture requires a minimum cash balance of $7.5 million.
- Management stated available funds were sufficient for at least 12 months from issuance of the financial statements, while identifying potential need for future capital. It cited material cash needs over the next 24 months, including clinical development and debt service.
Material changes, outlook and risks
- Shares outstanding increased from 14.8 million at year-end 2019 to 32.4 million at June 30, 2020 following the placement; warrants could add up to 17.6 million shares if exercised.
- Current liabilities were $42.415 million and total liabilities $106.474 million at June 30. Total assets were $71.710 million, with capital deficiency of $34.764 million.
- Management expects R&D to remain its primary expense. Future financing may depend on clinical progress, regulatory review, commercialization, conversions of notes, and continued NYSE American listing compliance.
- The company had received an NYSE American deficiency letter relating to stockholders’ equity and historical net losses. The letter had no immediate effect on trading while the company sought to regain compliance.
- Key risks include FDA or other regulatory outcomes, trial delays or failures, COVID-19 effects, partner and Fiocruz purchase obligations, competition, financing and debt repayment, and listing compliance. The company reported no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- PRX-102 BLA review status, FDA requests and eventual regulatory decision; the filing does not report approval.
- How the $6.7 million Chiesi-related revenue estimate revision affects future revenue recognition and remaining development reimbursements.
- Whether bank deposits count toward the 2021 Notes’ $7.5 million minimum-cash covenant and the company’s compliance with that requirement.
- Cash runway and financing needs relative to operating cash use, secured notes due November 2021, and potential warrant dilution.
- NYSE American compliance progress and Fiocruz’s purchase performance under the Brazil agreement.