Pluristem Therapeutics Inc. — FY2012 Form 10-K
Period clarification: The supplied filing is Pluristem Therapeutics Inc.’s annual report for the fiscal year ended June 30, 2012, not a 2011 Q4 filing. The filing identifies the company as Pluristem Therapeutics Inc.; it does not identify it as Pluri Inc. Financial figures below are in U.S. dollars, generally in millions unless stated otherwise.
Business context and reporting period
Pluristem is a clinical-stage cell-therapy company developing ready-to-use products made from placenta-derived PLX cells. Its proprietary 3D PluriX process is intended to support scalable manufacturing. The company had no product sales and remained dependent on licensing income, equity financing and research grants. Its lead program, PLX-PAD, targets peripheral artery disease; other development areas include muscle injury and bone-marrow disorders. The company reported 87 full-time and 12 part-time employees, primarily in R&D and clinical manufacturing.
Financial performance and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $0.716 | $0 |
| R&D expense, before grants and participation | $12.706 | $8.311 |
| R&D expense, net | $9.179 | $6.629 |
| General and administrative expense | $6.568 | $4.485 |
| Operating loss | $15.031 | $11.114 |
| Net loss | $14.794 | $10.848 |
| Basic and diluted loss per share | $0.34 | $0.35 |
| Cash used in operating activities | $3.275 | $5.755 |
FY2012 revenue came from the United Therapeutics license agreement; it was not product-sales revenue. Gross margin is not a useful indicator for this license-fee business, and the filing does not provide a comparable product-sales margin. Net R&D costs rose 38%, while G&A rose 46%; management attributed increases principally to expanded activity, hiring, salaries and stock-based compensation. Net loss increased about 36%, although loss per share declined as the weighted-average share count increased.
At June 30, 2012, cash and cash equivalents were $9.389 million, short-term bank deposits $21.397 million and marketable securities $7.023 million—$37.809 million combined. Current assets were $38.192 million and current liabilities $5.522 million, yielding working capital of $32.670 million. Accumulated deficit was $65.747 million. Liabilities included deferred license revenue, a United advance, payables and severance obligations; the filing reports no off-balance-sheet arrangements and no material interest-bearing debt balance.
Cash and cash equivalents fell $33.440 million during the year. Operating activities used $3.275 million; investing activities used $30.797 million, largely for short-term deposits, marketable securities, equipment and facility construction; financing activities provided $0.632 million, mainly from warrant and option exercises. Thus, the decline in cash equivalents should not be read as equivalent to operating cash burn.
Material changes versus the prior year
- Revenue began at $0.716 million, compared with none in FY2011, reflecting recognition over time of the United license upfront fee.
- R&D and administrative spending increased materially as the company expanded programs and staffing. R&D grants and other participation increased to $3.527 million from $1.682 million.
- FY2012 included $4.907 million of stock-based compensation to employees, directors and consultants in the cash-flow reconciliation, as well as $3.672 million of shares issued as facility-construction consideration.
- Cash, deposits and marketable securities combined declined from $42.829 million at June 30, 2011 to $37.809 million at June 30, 2012, while current liabilities rose from $2.018 million to $5.522 million.
Outlook, developments and risks
- Management expected no product-sales revenue in the next 12 months and said products were unlikely to be ready for sale for at least three years, if ever. It expected FY2013 operating expenses to increase significantly, driven by planned clinical trials, facility construction and work on additional indications; G&A was expected to remain near FY2012 levels.
- Management believed cash and other resources were sufficient for at least 12 months, but also said additional funding might be needed before operations generated meaningful cash flow. The company had an effective shelf registration statement and expected to continue pursuing grants and licensing arrangements.
- The United agreement granted exclusive worldwide PAH rights and provided for the $7 million upfront payment received in August 2011 ($5 million non-refundable and $2 million refundable development advance), up to $37.5 million in regulatory milestones, potential North American facility expense reimbursement of up to $10 million, eligible development-cost reimbursement and post-commercialization royalties and product supply. Milestones and commercial proceeds were contingent, not assured.
- Clinical progress included FDA clearance in April 2012 for a Phase II PLX-PAD intermittent-claudication trial and German regulatory clearance for a Phase I/II muscle-injury study. Compassionate-use bone-marrow cases and preclinical findings were encouraging but do not establish efficacy. The filing describes PLX-PAD as the only product then in clinical trials and emphasizes that clinical and regulatory success remains uncertain.
- Key risks include ongoing losses and possible need for dilutive financing; clinical, manufacturing and regulatory uncertainty; dependence on grants, collaborators and suppliers; intellectual-property challenges; foreign-exchange exposure; and concentration of R&D and manufacturing in Israel, with associated geopolitical and operational risks. A potential dispute over a price restriction in a 2007 financing agreement also remained unresolved as to possible remedies.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. The filing reported no legal proceedings.
Most important facts for investors to verify
- Cash, deposits and securities available after considering restrictions, investment liquidity and committed spending; reconcile this with management’s 12-month funding assessment.
- Actual clinical-trial enrollment, safety and efficacy results, regulatory timelines, and whether compassionate-use outcomes are supported by controlled evidence.
- Progress, costs and timing of the new manufacturing facility, including the contractor share consideration and potential reimbursement under the United agreement.
- United agreement milestones, expense reimbursements, deferred revenue and advance balances, and the conditions for future royalties or product supply.
- Future financing needs, potential share dilution and outstanding warrants, options and unvested restricted stock units.
- Exposure to the prior financing price-floor dispute, OCS grant repayment and technology-transfer restrictions, and currency and Israeli operational risks.