Protalix BioTherapeutics, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filed March 8, 2016. This is an annual report, not a standalone Q4 filing. Unless noted, amounts are U.S. dollars.
Business context
Protalix develops and commercializes recombinant therapeutic proteins using its proprietary plant-cell ProCellEx platform. Its only marketed product was taliglucerase alfa for Gaucher disease, sold as Uplyso in Brazil and Elelyso elsewhere. The main pipeline programs were PRX-102 for Fabry disease, PRX-110 (inhaled AIR DNase) for cystic fibrosis, and OPRX-106 (oral anti-TNF) for inflammatory disease.
In October 2015, Protalix amended its Pfizer agreement, transferring Pfizer the Elelyso rights worldwide except Brazil and selling its collaboration interest. Protalix retained Brazilian rights and agreed to supply drug substance to Pfizer. Pfizer also bought 5,649,079 newly issued shares for $10 million.
Financial results and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Continuing-operations revenue | $4.364 million | $3.523 million |
| Gross profit / gross margin | $3.634 million / approximately 83% | $2.893 million / approximately 82% |
| Net R&D expense, after grants | $20.025 million | $22.224 million |
| SG&A expense | $7.279 million | $9.228 million |
| Operating loss | $23.670 million | $28.559 million |
| Net financial expense | $3.612 million | $4.739 million |
| Loss from continuing operations | $27.282 million | $33.298 million |
| Net income (loss), including discontinued operations | $58.037 million | $(29.943) million |
| Cash and cash equivalents at year-end | $76.374 million | $54.767 million |
FY2015 continuing revenue was from Brazilian product sales. Reported net income was driven by $85.319 million of income from discontinued operations, including a $39.899 million disposal gain; it does not represent recurring operating profitability. Fourth-quarter revenue was zero, continuing-operations loss was $8.571 million, and net income was $72.900 million, largely reflecting the discontinued-operations transaction.
Net cash used in operating activities was $24.284 million in 2015, versus $29.281 million in 2014. Investing activities provided $39.387 million, principally from the Pfizer transaction; financing activities provided $6.635 million, mainly from the Pfizer share issuance. Management said available cash was expected to fund planned operations for at least 12 months, while cautioning that assumptions could change and further financing might be needed.
At year-end, total assets were $97.253 million, current assets $85.881 million, current liabilities $11.235 million, and total liabilities $86.380 million. Shareholders’ equity was $10.873 million, compared with a $55.601 million capital deficiency a year earlier. Current assets included $2.073 million of discontinued-operation assets. Debt included $67.796 million carrying value of 4.5% convertible notes due September 2018 and a $4.301 million promissory note payable to Pfizer; reported contractual obligations for convertible notes were $78.315 million. Interest paid on the notes was $3.105 million in 2015.
Material changes and outlook
- Revenue increased 24% year over year, but remained modest and depended on Brazilian sales. Net R&D expense declined 9% and SG&A declined 21%; the company continued to report substantial operating losses.
- The Pfizer transaction changed the commercial model: Pfizer receives all Elelyso revenue and bears expenses outside Brazil, while Protalix retains Brazilian revenue and expenses. Protalix received $36 million cash for its collaboration interest and transferred its Israeli Elelyso rights. The company remains obligated to supply Pfizer for an initial 10-year period, with possible extensions and financial penalties for supply failures.
- Fiocruz purchases under the Brazilian supply and technology-transfer agreement were materially below agreed milestones. Protalix retained the right to terminate but was continuing supply and discussing compliance with Fiocruz.
- Management expected PRX-102 Phase III trials to begin in the first half of 2016, subject to finalizing the FDA Special Protocol Assessment process. It planned mid-2016 proof-of-concept studies for AIR DNase and OPRX-106. These were projections, not completed milestones.
- PRX-102 interim findings were based on small patient cohorts and included favorable biomarker, pain, kidney, and cardiac observations. The company described the results as preliminary; later-stage safety and efficacy remain uncertain.
Risks, contingencies, and other notable items
- Protalix expected ongoing losses and negative operating cash flow. Additional capital may be required; equity financing could dilute shareholders, while debt could increase financial constraints.
- Clinical, regulatory, manufacturing, and commercialization risks are significant. Early trial results may not predict later outcomes, and approval is not assured. Protalix also relies on third parties for certain manufacturing and clinical activities.
- Fiocruz’s purchase shortfalls could affect Brazilian commercialization and the agreement’s continuation. Pfizer supply obligations expose the company to potential penalties if it cannot meet commitments.
- Israeli government research grants carried a contingent royalty liability of approximately $33.3 million at year-end; manufacturing or transferring grant-funded technology outside Israel may require approvals and could increase repayment obligations.
- The company reported no material legal proceedings. Management and the auditor concluded internal control over financial reporting was effective at December 31, 2015.
Key facts for investors to verify
- Review the audited statements and notes for the composition and nonrecurring nature of FY2015 discontinued-operations income, disposal gain, and cash proceeds from the Pfizer transaction.
- Confirm current cash runway against operating cash burn, planned Phase III and proof-of-concept trial costs, and the 2018 note maturity and related obligations.
- Track FDA SPA status, trial initiation, enrollment, endpoints, and subsequent PRX-102 data; assess the small sample sizes and preliminary nature of reported results.
- Monitor Fiocruz purchase performance, any agreement termination or renegotiation, and actual Brazilian sales and collections.
- Assess Protalix’s capacity to meet Pfizer supply commitments and the potential financial consequences of any delay or shortfall.