Protalix BioTherapeutics, Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013; filed November 7, 2013. Unaudited financial amounts below are in U.S. dollars, thousands, unless stated otherwise. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx platform. Its lead product, taliglucerase alfa (ELELYSO/UPLYSO), was approved in the U.S., Israel, Brazil and certain other countries.
Key financial results
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $2,284 | $3,724 | $8,116 | $33,698 |
| Share in collaboration agreement | $1,075 | $1,666 | $2,275 | $678 |
| Gross profit | $1,772 | $3,023 | $6,515 | $27,410 |
| Net R&D expense | $5,637 | $6,363 | $17,418 | $22,062 |
| General and administrative expense | $1,780 | $2,220 | $6,065 | $7,353 |
| Operating loss | $5,645 | $5,560 | $16,968 | $2,005 |
| Net loss | $5,747 | $5,479 | $16,905 | $1,741 |
| Loss per share, basic and diluted | $0.06 | $0.06 | $0.18 | $0.02 |
Gross profit includes collaboration-agreement income, reported separately from revenue. The filing does not present a standalone gross-margin percentage.
Balance sheet, cash flow and liquidity
- At September 30, 2013, cash and cash equivalents were $91.4 million, versus $52.0 million at December 31, 2012. Current assets were $105.2 million and current liabilities $25.2 million; working capital was approximately $80.0 million.
- Total liabilities were $137.9 million, including $66.9 million carrying value of convertible notes. The notes had $69.0 million principal and a reported fair value of $71.8 million. Capital deficiency was $16.7 million.
- For the first nine months, operating cash use was $25.9 million, investing cash use $1.8 million, and financing cash provided $67.0 million, primarily from the notes offering. Cash increased by $39.4 million.
- The September 2013 private placement generated $66.8 million net proceeds. Notes bear 4.50% interest, mature September 15, 2018, and initially convert at approximately $5.76 per share. Interest is payable semiannually beginning March 2014.
Changes versus comparable periods
- Nine-month revenue fell $25.6 million, largely because 2012 included a $25.0 million Pfizer milestone payment for FDA approval. 2013 revenue included $3.6 million from Israeli product sales; Q3 sales in Israel were $1.4 million.
- Nine-month net loss increased to $16.9 million from $1.7 million, while operating cash use increased to $25.9 million from $1.2 million. The 2012 comparison benefited from the approval milestone and differs in working-capital movements.
- Net R&D expense declined 21% for the nine months, mainly due to winding down certain taliglucerase trials, lower share-based compensation-related salaries, and manufacturing materials shifting to cost of revenue or inventory. G&A fell 18%, primarily due to lower share-based compensation-related salary expense.
- Collaboration income increased to $2.3 million from $0.7 million for the nine months, reflecting Protalix’s 40% share of Pfizer collaboration net income. Cost of revenue declined 44%; 2012 included $2.1 million in royalties.
Outlook, developments and risks
- Management said existing cash was expected to fund operating and capital needs for the foreseeable future, while cautioning that estimates depend on assumptions and funding may be needed sooner. Significant R&D spending is expected to continue.
- The June 2013 Fiocruz Brazil supply and technology-transfer agreement provides for minimum purchases of approximately $40 million in each of the first two years and approximately $40 million annually thereafter. Its effectiveness was still subject to Brazilian National Institute of Industrial Property approval. The arrangement includes payments to Pfizer from net profits, capped at approximately $12.5 million annually, and a 5% fee on Brazilian net proceeds to an agent.
- Pipeline updates included PRX-102 in Phase I/II; PRX-112 in a Phase I study, extended to evaluate additional patients with low platelet counts; and earlier-stage PRX-106, PRX-107 and PRX-110. Management anticipated an FDA pre-IND meeting for PRX-107 in the first half of 2014 and expected PRX-110 toxicology completion in early 2014.
- Key risks include commercial uptake and international approvals for taliglucerase alfa, partner and distributor execution, clinical and regulatory uncertainty, competition, intellectual property and product-liability risks, and the ability to finance development and service debt. Notes conversion could dilute existing shareholders. The company reported no material legal proceedings or off-balance-sheet arrangements, and said disclosure controls were effective.
Important facts for investors to verify
- Status and timing of the required Brazilian approval, Fiocruz purchases, and progress and economics of the technology transfer.
- Taliglucerase alfa sales trends, Pfizer collaboration profitability, and the distinction between product revenue and the separately reported collaboration share.
- Cash burn relative to management’s “foreseeable future” liquidity statement, including R&D needs and scheduled note interest and repayment obligations.
- Clinical and regulatory milestones for PRX-102, PRX-112 and the other pipeline candidates, and any changes to the stated development timelines.
- Potential dilution and debt-service implications of the $69.0 million convertible notes, including conversion activity and the terms governing repayment or a fundamental change.