Protalix BioTherapeutics, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Amounts below are U.S. dollars unless stated otherwise.
Business context
Protalix develops and manufactures recombinant therapeutic proteins using its ProCellEx plant-cell expression platform. Its marketed product is taliglucerase alfa, sold as Elelyso outside Brazil and BioManguinhos alfataliglicerase in Brazil. The leading development program is PRX-102 (pegunigalsidase alfa) for Fabry disease; other candidates include PRX-110, PRX-115 and PRX-119. Chiesi holds worldwide commercialization rights to PRX-102, while Pfizer holds Elelyso rights outside Brazil.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Total revenue | $62.9 million | $54.7 million | Up 15%. |
| Goods revenue | $16.2 million | $15.9 million | Up 2%; included $8.1 million from Pfizer, $8.0 million from Brazil and $0.1 million from Chiesi. |
| License and R&D services revenue | $46.7 million | $38.8 million | Up 20%; included a $12.8 million revenue adjustment related to updated estimated costs under the Chiesi agreements. |
| Cost of goods sold | $10.9 million | $10.9 million | Approximately flat. |
| R&D expense, net | $38.2 million | $44.6 million | Down 14%, primarily as two PRX-102 Phase III trials were completed and certain manufacturing costs were recorded in inventory. |
| SG&A expense | $11.1 million | $9.9 million | Up 12%, principally from higher share-based compensation and director costs. |
| Operating income (loss) | $2.7 million | $(10.7) million | Improved, helped by higher license and R&D revenue. |
| Net loss | $(6.5) million | $(18.3) million | Loss narrowed; net financial expense rose to $9.2 million from $7.6 million. |
| Net loss per share | $(0.22) | $(1.23) | Basic and diluted. |
| Net cash used in operating activities | $26.1 million | $19.4 million | Cash use increased despite the smaller net loss, including a $26.2 million decrease in contract liabilities and a $4.9 million increase in inventory. |
The filing does not provide a single overall operating margin measure. Product sales less cost of goods sold were approximately $5.4 million; this does not represent total-company gross profit because license and R&D services revenue is reported separately.
At year-end, cash and cash equivalents were $18.3 million and short-term bank deposits were $20.3 million, totaling $38.5 million. Total assets were $67.9 million and total liabilities were $95.0 million; capital deficiency was $27.0 million. Current liabilities included $54.4 million of convertible notes. The company reported $57.9 million principal outstanding on its 7.5% secured convertible notes, due November 15, 2021, and a $4.1 million Pfizer promissory note due January 2022, subject to earlier payment in specified circumstances. The notes require a minimum cash balance of $7.5 million.
During 2020, Protalix raised approximately $43.7 million gross in a private placement and $5.0 million gross through its ATM program. After year-end, it raised approximately $8.8 million through the ATM and $40.2 million gross in a February 2021 public offering. Management stated available funds, including post-year-end proceeds, were expected to fund operations for at least 12 months and cover the notes at maturity unless refinanced, restructured or converted.
Material changes and developments
- PRX-102’s U.S. BLA was accepted for Priority Review. The FDA extended the action date from January 27 to April 27, 2021 and said inspections of Protalix’s facility and a European fill-and-finish facility were needed; COVID-19 travel restrictions could prevent timely inspections.
- The PRX-102 BRIDGE and BRIGHT Phase III studies were complete; BALANCE was fully enrolled and ongoing. Interim BALANCE results were expected in the first half of 2021.
- Fiocruz purchases under the Brazil supply agreement remained below certain commitments. Protalix continued supplying the product and was discussing steps with Fiocruz; the filing says Protalix has a termination right.
- In February 2021, Protalix licensed PRX-110 worldwide to SarcoMed for inhaled respiratory uses, subject to conditions including negotiation of a supply agreement.
- Protalix reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls and internal control over financial reporting as of year-end. The auditor issued an unqualified opinion and identified estimating costs to complete Chiesi license and R&D services as a critical audit matter.
Outlook, risks and contingencies
Management expected R&D to remain its primary expense and identified PRX-102 development and commercialization as a key focus. The filing gives no specific revenue, earnings or cash-flow guidance. Protalix remains dependent on regulatory approval, manufacturing readiness and Chiesi’s development and commercialization efforts for PRX-102. FDA inspections, trial outcomes, reimbursement and competition could delay or limit commercialization.
Other significant risks include the 2021 notes’ near-term maturity and secured status, the minimum-cash covenant, continued operating cash outflows, possible dilution from equity and warrant issuance, Fiocruz’s purchase shortfalls, dependence on third-party suppliers and fill-and-finish providers, and the potential effects of COVID-19 on operations, trials and inspections. NATI grants carry royalty obligations and restrictions on certain transfers of technology or manufacturing outside Israel. Protalix reported approximately $39.8 million of contingent NATI royalty liability at year-end, before interest and subject to the terms of the grant arrangements.
Important facts for investors to verify
- Whether the FDA completed the required inspections and acted on the PRX-102 BLA by the April 27, 2021 PDUFA date, and the resulting approval conditions or post-approval commitments.
- PRX-102’s BALANCE interim and final results, and how regulators interpret the BRIDGE and BRIGHT data.
- How Protalix funded, repaid, refinanced, restructured or converted the $57.9 million 2021 Notes at maturity, while meeting the $7.5 million minimum-cash covenant.
- Whether Fiocruz met purchase obligations and the resulting impact on Brazilian product sales and the Brazil agreement.
- How much of 2020 license and R&D revenue depended on estimates of remaining Chiesi performance costs, given the $12.8 million estimate-related adjustment and the auditor’s critical audit matter.
- Whether post-year-end equity proceeds and subsequent operating cash flows were sufficient to support the stated liquidity outlook without materially diluting shareholders.