Pluristem Therapeutics Inc. — Form 10-Q summary
Reporting period: The filing covers the three months ended September 30, 2016, Pluristem’s first quarter of fiscal 2017, with comparisons to the three months ended September 30, 2015. Financial statement amounts are in U.S. dollars, thousands, unless otherwise indicated. Pluristem develops placenta-based cell therapy candidates and reported no product revenue in the period.
Financial results and liquidity
| Metric | Three months ended Sep. 30, 2016 | Three months ended Sep. 30, 2015 |
|---|---|---|
| Revenue | $0 | $95 |
| Net R&D expense, after IIA and other participation | $4,998 | $4,128 |
| General and administrative expense | $1,564 | $1,487 |
| Operating loss | $6,562 | $5,523 |
| Financial income (expense), net | $238 income | $353 expense |
| Net loss / loss per share | $6,324 / $0.08 | $5,876 / $0.07 |
| Cash used in operating activities | $3,923 | $3,768 |
Gross profit and operating margins are not meaningful because the company had no revenue in the 2016 period. Net loss increased about 8%; net R&D expense rose 21%, primarily from materials and clinical-study consultant and subcontractor costs, partly offset by lower stock-based compensation. G&A increased 5%. Management attributed the year-over-year improvement in financial results to foreign-exchange and hedging gains, partly offset by lower income from marketable securities.
At September 30, 2016, current assets were $30.314 million, current liabilities $5.374 million, and working capital $24.940 million. Cash, cash equivalents, short-term bank deposits, and marketable securities totaled approximately $28.762 million; cash and cash equivalents alone were $6.098 million. Total assets were $40.209 million and stockholders’ equity $32.903 million. The filing reports no debt balance. Operating cash burn was partly offset by $3.794 million of investing cash inflow, mainly from withdrawals of deposits and sales/redemptions of securities; financing provided $4,000. Restricted cash and deposits of $543,000 were pledged for hedging transactions, a credit line, and bank guarantees.
Material developments and outlook
- Pluristem reported accumulated losses of $168.081 million and expects continued operating losses. It does not expect product-sales revenue in the next 12 months and says future cash needs will increase. Management believed existing funds and its operating plan would cover obligations for at least 12 months, while also noting it may need additional financing.
- On October 25, 2016, after quarter-end, Pluristem signed a term sheet for an approximately $30 million investment by Innovative Medical, subject to shareholder approval and definitive agreements. Proposed consideration includes about 16.89 million shares at $1.77 per share and 4.4225 million five-year warrants exercisable at $2.50. The terms include potential board designation and other investor rights; closing was not reported as completed in this filing.
- In November 2016, the company announced U.K. regulatory clearance to begin a pivotal Phase III PLX-PAD trial for critical limb ischemia, with enrollment anticipated in the first half of 2017. It also described plans for a Phase III femoral-neck-fracture trial, ongoing Phase II intermittent-claudication enrollment, and NIH/NIAID-supported PLX-R18 dose-selection studies for acute radiation syndrome.
- United Therapeutics terminated its PAH license in December 2015; Pluristem regained the relevant rights and recognized remaining upfront payment as revenue in fiscal 2016. The 2015 comparable-quarter revenue came from that agreement.
Risks, contingencies, and unusual items
- Funding depends on existing liquid resources, potential equity offerings, licensing arrangements, grants, and possible securities sales; the proposed Innovative Medical financing was not yet finalized. Product development, clinical outcomes, regulatory approvals, trial timing, and commercialization are uncertain.
- IIA grants carry contingent royalties generally of 3%–4% on qualifying product and service sales until grant amounts plus interest are repaid. Grants obtained totaled approximately $24.018 million; royalties paid or accrued were $166,000, leaving a stated contingent balance of $23.852 million, excluding applicable interest. Payment is contingent on sales.
- Available-for-sale securities included an investment in CHA Biotech valued at $5.717 million. Management reported no other-than-temporary impairment on securities during the quarter despite unrealized losses.
- The filing states there were no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Innovative Medical’s shareholders approved the term sheet and whether definitive agreements closed, including final investment, dilution, warrant, governance, and other rights.
- Actual cash runway and quarterly cash burn, considering the planned clinical program, restricted funds, and the distinction between cash and marketable or longer-term assets.
- Current enrollment, timing, and regulatory status for the PLX-PAD and PLX-R18 trials, and whether anticipated milestones were achieved.
- Terms and potential repayment implications of IIA grants, and the value and liquidity of the CHA Biotech investment and other marketable securities.
- Any subsequent changes to financing plans, revenue expectations, or management’s stated ability to fund operations for at least 12 months.