Protalix BioTherapeutics, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; unaudited. Dollar amounts below are in U.S. dollars unless stated otherwise. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx platform. Its principal marketed product is taliglucerase alfa for Gaucher disease, commercialized with Pfizer outside Israel and Brazil.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $2.425 million | $2.264 million | $9.121 million | $5.832 million |
| Share of collaboration agreement | $0.261 million | $0.800 million | $0.948 million | $1.200 million |
| Gross profit | $1.081 million | $1.746 million | $4.391 million | $4.743 million |
| Net R&D expense | $4.962 million | $6.458 million | $11.029 million | $11.781 million |
| Selling, general and administrative expense | $1.566 million | $2.182 million | $5.277 million | $4.285 million |
| Operating loss | $5.447 million | $6.894 million | $11.915 million | $11.323 million |
| Net loss | $6.119 million | $6.837 million | $13.464 million | $11.158 million |
| Basic and diluted loss per share | $0.07 | $0.07 | $0.15 | $0.12 |
For the six-month period, revenue plus collaboration income was $10.069 million; reported gross profit was $4.391 million. The corresponding figures for Q2 were $2.686 million and $1.081 million.
Liquidity, cash flow and debt
- Cash and cash equivalents were $71.144 million at June 30, 2014, down from $86.398 million at December 31, 2013.
- Current assets were $82.364 million and current liabilities $27.179 million, a current ratio of approximately 3.0. Total liabilities were $136.441 million; capital deficiency was $39.790 million.
- Convertible notes due 2018 had a carrying value of $67.255 million and disclosed fair value of approximately $70.2 million. The notes bear 4.5% interest.
- Six-month operating cash use was $14.859 million; investing cash use was $0.565 million; financing provided $0.031 million. Cash decreased by $15.254 million, after foreign-exchange effects.
Changes versus the prior comparable periods
- Six-month revenue increased 56%, primarily reflecting $3.5 million of sales to Brazil’s Fiocruz, $2.5 million of sales in Israel, and $1.4 million of product delivered to Pfizer. Revenue also includes quarterly amortization of prior $65 million upfront and milestone payments.
- Q2 revenue rose 7%, while the collaboration contribution declined to $0.261 million from $0.800 million. Six-month collaboration income fell 21%.
- Six-month cost of revenues rose 148% to $5.678 million. It included a $1.6 million inventory write-down and costs of products delivered to Pfizer at cost.
- Six-month operating loss increased to $11.915 million from $11.323 million, and net loss increased to $13.464 million from $11.158 million, including higher financial expense. In Q2, operating loss and net loss improved year over year.
- Six-month SG&A rose 23%, mainly due to approximately $1.3 million in Brazil-related sales and marketing expense. Net R&D expense declined, aided by increased grants and reimbursements.
- Cash used in operations improved from $17.695 million in the first half of 2013 to $14.859 million in the first half of 2014.
Outlook, operating developments and risks
- Management said existing cash should fund operating and capital needs for the foreseeable future, while cautioning that this estimate depends on assumptions that may prove incorrect. The company expects significant ongoing R&D spending and may need additional financing; no future external funding commitments were disclosed.
- Under the Brazil agreement, Fiocruz committed to purchase at least approximately $40 million of product during the first two years and at least approximately $40 million annually thereafter. Protalix reported $3.5 million of Fiocruz sales for the first half of 2014. The agreement includes a multi-stage technology transfer; completing its final stage is tied to approximately $280 million in cumulative purchases. Protalix also agreed to pay Pfizer up to approximately $12.5 million annually from defined net profits and an agent 5% of Brazil net proceeds.
- Management expected PRX-102 patient recruitment and interim results by year-end 2014, with final results in the first half of 2015; PRX-112 recruitment and results during 2014; initiation of a PRX-106 Phase I trial in 2014; and an IND submission for PRX-110 after toxicology work around year-end 2014. These are forward-looking expectations, not reported outcomes.
- Key stated risks include commercialization and market acceptance, Fiocruz purchase and supply performance, regulatory approvals, clinical trial results and timing, financing needs, competition, and the ability to meet obligations on the 2018 notes. The filing reported no material legal proceedings and no material changes to previously disclosed risk factors.
- Subsequent event: on July 24, 2014, the board approved a 10-year option for 150,000 shares for its new chairman, with a $3.37 exercise price and estimated grant-date fair value of approximately $293,000.
Important facts for investors to verify
- Whether Fiocruz meets its purchase commitments and how Brazil sales, collections, and related payments to Pfizer and the agent develop.
- Cash burn and runway relative to management’s “foreseeable future” estimate, and the company’s ability to meet or refinance the 2018 convertible notes.
- Progress and actual results for the PRX-102, PRX-112, PRX-106 and PRX-110 development milestones cited in the filing.
- The sustainability and composition of revenue, including amortization of past partner payments, product sales, and Pfizer collaboration income; also monitor further inventory write-downs.
- Commercial launches and regulatory approvals, including the pending U.S. pediatric label supplement and approvals in additional markets.