PLX

Business Context and Reporting Period

Company: Protalix Biotherapeutics, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: Protalix is a biopharmaceutical company developing recombinant therapeutic proteins using its proprietary ProCellEx plant cell expression system. The company's lead candidate is taliglucerase alfa (UPLYSO) for the treatment of Gaucher disease. In November 2009, the company entered an exclusive license and supply agreement with Pfizer Inc. for worldwide rights (excluding Israel) to taliglucerase alfa. The company is no longer considered a development-stage enterprise as of November 30, 2009.

Key Financial Metrics

Note: Revenue consists of the pro rata amortization of the $60.0 million upfront payment and $5.0 million milestone payment received from Pfizer.

Material Changes vs. Prior Period

• Revenue Recognition: The company recorded $1.1 million in revenue for Q1 2010, compared to zero in Q1 2009, driven by the Pfizer licensing agreement.
• Expense Growth: R&D expenses increased by 75% ($3.8 million) year-over-year, primarily due to increased clinical site operations, patient enrollment, salaries, and materials. G&A expenses increased by 30% ($378,000) due to higher legal, accounting, and salary costs.
• Cash Position: Cash and cash equivalents decreased by $11.9 million during the quarter, ending at $69.4 million. This decline was driven by net cash used in operations ($8.9 million) and investing activities ($3.0 million, primarily for property and equipment).
• Deferred Revenue: Deferred revenues decreased by $1.1 million as the company recognized revenue from the Pfizer upfront payment.

Guidance, Outlook, and Risks

• Regulatory Status: The company filed a New Drug Application (NDA) for taliglucerase alfa in December 2009. In January 2010, the FDA requested additional data regarding Chemistry, Manufacturing, and Controls (CMC), which was provided in April 2010. No additional clinical data was requested.
• Future Funding: Management believes current cash and cash equivalents are sufficient to fund operations for the foreseeable future. However, the company expects to continue generating losses for several years due to R&D and commercialization costs. Future capital needs may require equity or debt financing.
• Key Risks:
  • Regulatory approval is not guaranteed; delays or rejection of the NDA could materially impact the business.
  • Dependence on the Pfizer agreement for global commercialization outside of Israel.
  • Potential need for additional financing, which could result in shareholder dilution.
  • Currency fluctuations between the U.S. dollar and the Israeli New Shekel (NIS), as approximately 35% of costs are incurred in NIS.
• Unusual Items: The company received a $60 million upfront payment and a $5 million milestone payment from Pfizer in late 2009, which are being recognized as revenue over time. The company also initiated a Phase I clinical trial for PRX-105 (biodefense) in March 2010.

Investor Verification Checklist

• FDA Response: Verify the status of the FDA's review of the CMC data submitted in April 2010 and any subsequent requests or approval timelines.
• Cash Burn Rate: Monitor the quarterly cash burn rate against the $69.4 million cash balance to assess runway without additional financing.
• Pfizer Milestones: Track progress toward the $50 million in potential milestone payments and the 40% royalty structure on net profits.
• Manufacturing Validation: Confirm the successful completion of the manufacturing process validation required by the FDA.
• Secondary Pipeline: Review updates on the Phase I trial for PRX-105 and other pipeline candidates (Fabry disease, antiTNF).