Business context and reporting period
Protalix Biotherapeutics, Inc. filed this Form 10-K for the fiscal year ended December 31, 2012. The company develops recombinant therapeutic proteins using its plant-cell ProCellEx platform. Its first commercial product, taliglucerase alfa (ELELYSO) for Gaucher disease, was approved by the FDA in May 2012 and by Israel in September 2012; Uruguay also approved it during 2012. Pfizer holds exclusive commercialization rights outside Israel.
Financial and operating highlights
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $34.9 million | $8.4 million |
| Gross profit | $26.3 million | $1.4 million |
| Net loss | $11.6 million | $36.5 million |
| Net loss per share | $0.13 | $0.43 |
| Net cash from (used in) operations | $0.6 million | $(23.6) million |
| Cash and cash equivalents at year-end | $52.0 million | $27.0 million |
| Total assets | $78.7 million | $51.8 million |
| Total liabilities | $82.1 million | $77.9 million |
Revenue rose 315%, primarily from a $25.0 million Pfizer milestone upon FDA approval. The $65.0 million Pfizer upfront and earlier milestone payments continue to be amortized over an estimated 14-year performance period. The company also recorded $5.3 million of product sales, mostly to Pfizer. It recognized a $0.4 million share of Pfizer collaboration losses in 2012, versus $5.4 million of losses in 2011. The 2012 gross profit includes these collaboration results.
Research and development expense, net of grants and reimbursements, was $28.7 million, down from $31.0 million. General and administrative expense increased to $9.8 million from $6.9 million. Cost of revenues increased to $8.1 million, including royalties and manufacturing facility costs. The company began capitalizing taliglucerase alfa manufacturing costs after FDA approval.
Operating cash flow improved to positive $0.6 million, while investing activities used $2.3 million, primarily for property and equipment. Financing activities provided $26.6 million, principally from a February 2012 stock offering that generated $25.4 million net proceeds. Year-end current assets were $61.2 million and current liabilities were $25.8 million. The filing reports no off-balance-sheet arrangements and no material conventional debt balance; liabilities include deferred revenue and collaboration-related obligations. Total liabilities exceeded assets, leaving a $3.4 million capital deficiency.
Material changes and unusual items
- FDA approval drove the $25.0 million milestone and the substantial improvement in reported annual net loss; it is not recurring product-sales revenue.
- Quarterly results were uneven. In Q2 2012, revenue was $26.1 million and net income was $9.6 million; Q4 revenue was $1.2 million and net loss was $9.9 million. Q4 2011 revenue was $2.4 million and net loss was $8.9 million.
- The $8.3 million Pfizer clinical-development milestone was received in December 2012 and deferred to offset related research and development costs over the ongoing trial period.
- The company issued 5.175 million shares in its 2012 offering and reported 93.5 million shares outstanding at year-end, compared with 85.6 million a year earlier.
Outlook, risks and contingencies
Management said existing cash was expected to fund planned operating needs for at least 12 months, but noted assumptions could change and additional financing might be needed. The filing anticipated at least $30 million of spending over the next 12 months on the Israeli commercial effort and product-candidate development. Research and development was expected to remain the primary expense. A manufacturing-facility expansion was estimated at approximately $25 million, with completion expected in 2015.
The European Commission refused marketing authorization for taliglucerase alfa following the EMA committee’s recommendation. The filing says the decision was based on VPRIV’s EU orphan-market exclusivity, not taliglucerase alfa’s safety or efficacy assessment. Applications remained pending in Brazil and other countries; a possible long-term Brazilian supply arrangement was uncertain and dependent on regulatory approval.
Key risks include early-stage commercialization and reliance on Pfizer outside Israel; competition and market adoption; reimbursement and pricing; regulatory and clinical-trial uncertainty; manufacturing capacity, cGMP compliance and reliance on outside fill-and-finish providers; possible need for additional capital and shareholder dilution; and operations in Israel, including geopolitical, currency and government-grant restrictions. OCS grants carried an estimated contingent royalty liability of $21.3 million at year-end, subject to the terms of the grants and product commercialization. The company reported no material legal proceedings. The auditor gave an unqualified opinion on the financial statements and internal controls; management reported effective controls as of year-end.
Important facts for investors to verify
- Whether ELELYSO sales and Pfizer’s commercialization translate into recurring positive collaboration profits and cash receipts.
- How much of 2012 revenue and the improved loss reflects the one-time $25.0 million milestone rather than ongoing sales.
- Current cash runway, operating cash burn, and funding required for the stated development and facility-expansion plans.
- Status and commercial terms of regulatory applications, particularly in Brazil, and any changes to the EU access pathway.
- Size and timing of collaboration-loss deductions, deferred Pfizer revenue recognition, and OCS royalty obligations.
- Clinical progress, funding needs and milestone timing for PRX-102 and oral glucocerebrosidase, alongside commercialization and manufacturing risks.