Protalix BioTherapeutics, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. Although the request refers to 2013 Q4, this is an annual filing; selected Q4 figures are included below. Amounts are U.S. dollars unless stated otherwise.
Business context
Protalix develops and commercializes recombinant therapeutic proteins using its plant-cell-based ProCellEx platform. Its only approved product was taliglucerase alfa (ELELYSO in the United States and Israel; UPLYSO in Brazil and certain other markets), for Gaucher disease. Pfizer commercializes the product outside Israel and Brazil; Protalix retained those territories. The pipeline includes PRX-102 for Fabry disease, oral glucocerebrosidase for Gaucher disease, oral anti-TNF, and DNase I for cystic fibrosis.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $10.479 million | $34.870 million |
| Company share of Pfizer collaboration | $1.034 million income | $0.446 million loss |
| Cost of revenue | $5.428 million | $8.144 million |
| Gross profit | $6.085 million | $26.280 million |
| Net R&D expense | $24.816 million | $28.689 million |
| General and administrative expense | $8.385 million | $9.763 million |
| Operating loss | $27.116 million | $12.172 million |
| Net loss | $27.790 million | $11.618 million |
| Basic and diluted loss per share | $0.30 | $0.13 |
| Cash and cash equivalents at year-end | $86.398 million | $52.035 million |
| Total assets / total liabilities | $113.333 million / $140.279 million | $78.727 million / $82.084 million |
Gross margin was approximately 58% in 2013, versus 75% in 2012; the comparison is affected by the $25 million FDA-approval milestone included in 2012 revenue. Excluding that milestone, management reported 2012 revenue of approximately $9.9 million, compared with $10.5 million in 2013. 2013 product revenue included $5.0 million from Israeli sales.
Net cash used in operations was $30.653 million in 2013, compared with $0.635 million provided in 2012. Investing activities used $2.102 million; financing activities provided $66.892 million, primarily from the convertible-note offering. Year-end cash increased by $34.363 million. Management said available funds were expected to cover planned needs for the foreseeable future and at least 12 months, while noting that assumptions could change.
In September 2013, the company issued $69 million principal amount of 4.50% convertible notes due September 2018, receiving net proceeds of $66.8 million. The notes had a $67.048 million carrying amount at year-end and a disclosed fair value of approximately $72 million. Current liabilities were $26.696 million, against current assets of $97.903 million. Shareholders’ equity remained negative at $26.946 million. Contractual obligations totaled $95.274 million, including $84.499 million for convertible notes; the filing’s obligation schedule includes future amounts and should be reviewed with the debt terms.
Q4 2013: Revenue was $2.363 million, net loss was $10.885 million, and loss per share was $0.12. Q4 2012 revenue was $1.172 million, net loss was $9.877 million, and loss per share was $0.11.
Material changes versus the prior year
- Reported annual revenue fell 70% from 2012, primarily because 2012 included the one-time $25 million FDA approval milestone. Excluding that payment, revenue increased approximately 6% year over year.
- Net loss increased to $27.790 million from $11.618 million. The 2013 result included a $27.116 million operating loss and $0.674 million net financial expense, compared with 2012 net financial income of $0.554 million.
- Net R&D expense declined 9.1%, mainly due to lower share-based compensation and the winding down of some taliglucerase alfa trials. G&A expense fell 14%.
- Cash rose following the $66.8 million net convertible-note proceeds, while operating cash use increased substantially.
- Inventory increased from $4.039 million to $7.957 million, including finished goods of $5.523 million; the company recorded a $1.6 million inventory write-down in 2013.
Outlook, commentary and principal risks
- Management expected R&D to remain the largest expense and anticipated increased spending on PRX-102 and oral glucocerebrosidase, partly offset by continued winding down of taliglucerase alfa trials.
- The filing described plans to report interim PRX-102 results, initiate the next oral-GCD trial in the second half of 2014, begin an oral anti-TNF Phase I trial in 2014, and file an IND for DNase I in 2014. These are plans, not assured outcomes.
- The Fiocruz Brazil supply and technology-transfer agreement became effective in January 2014. Fiocruz committed to purchases of approximately $40 million during the first two years and at least approximately $40 million annually thereafter, subject to the agreement’s terms. Protalix must pay Pfizer up to approximately $12.5 million annually from defined Brazil net profits and an agent 5% of Brazil net proceeds.
- Commercialization remains dependent on Pfizer’s sales and execution outside Israel and Brazil, Fiocruz’s purchases and distribution in Brazil, reimbursement, and market acceptance amid competition from Cerezyme and VPRIV. Protalix reported no significant product revenue base independent of taliglucerase alfa.
- Other material risks include clinical and regulatory setbacks, manufacturing and supplier dependence, intellectual-property challenges, financing and debt-service needs, foreign-exchange exposure, and political or security disruption in Israel. EU orphan-drug exclusivity for VPRIV led the CHMP to recommend that the European Commission not grant taliglucerase alfa a marketing authorization.
- Israeli OCS grants carry royalty obligations and restrictions on transferring funded technology or manufacturing outside Israel. At year-end, the filing disclosed approximately $27.6 million of contingent OCS grant liability; maximum royalties under the funding arrangements were approximately $26.7 million excluding interest.
- The auditor issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting as of December 31, 2013. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether Pfizer commercialization and the company’s 40% share of collaboration results translate into sustained revenue and positive economics.
- Whether Fiocruz meets its purchase commitments, and how Brazil-related payments to Pfizer and the agent affect Protalix’s net proceeds.
- Cash burn, inventory levels and write-downs, and the assumptions underlying management’s liquidity runway statement.
- The convertible notes’ interest, conversion, redemption and maturity obligations, including potential dilution and refinancing needs.
- Regulatory status and trial progress for PRX-102, oral glucocerebrosidase, oral anti-TNF and DNase I, including whether stated 2014 plans were achieved.
- The scope and consequences of the EU marketing-authorization recommendation, OCS obligations, and any changes in product safety, reimbursement or manufacturing compliance.