Pluri Inc. (Pluristem Therapeutics Inc.) — Form 10-Q
Business context and reporting period. The filing covers the quarter ended December 31, 2013, the second quarter of fiscal 2014, and reports both three- and six-month results. Pluristem is a clinical-stage biotherapeutics company developing placenta-derived PLX cell therapies. Financial amounts below are in U.S. dollars, thousands, unless stated otherwise; the interim statements are unaudited.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2013 | Six months ended Dec. 31, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | $95 | $190 | $195 and $390, respectively |
| Gross profit | $92 | $184 | $189 and $378, respectively |
| Gross margin | 96.8% | 96.8% | About 96.9% |
| Net R&D expense | $5,107 | $8,230 | $3,653 and $6,351, respectively |
| General and administrative expense | $1,975 | $3,804 | $1,420 and $3,101, respectively |
| Operating loss | $(6,990) | $(11,850) | $(4,884) and $(9,074), respectively |
| Net loss | $(6,705) | $(11,460) | $(4,490) and $(8,485), respectively |
| Basic and diluted loss per share | $(0.11) | $(0.19) | $(0.08) and $(0.16), respectively |
Revenue was entirely from the United Therapeutics license agreement. Operating cash use was $8,107 for the six months, versus $6,890 in the prior-year period. Investing activities provided $2,547, and financing activities provided $1,179, principally from warrant exercises. Cash and cash equivalents declined to $4,626 from $9,007 at June 30, 2013; they were $23,548 at December 31, 2012.
At December 31, 2013, current assets were $58,401 and current liabilities were $5,579, yielding working capital of $52,822. Cash, short-term bank deposits and marketable securities totaled $56,747; restricted balances are additional but not freely available. Total assets were $71,328, stockholders’ equity $60,834, and accumulated deficit $98,362. The balance sheet reports deferred revenues and other liabilities, but no conventional interest-bearing debt balance is presented.
Material changes and notable items
- Six-month net loss increased to $11,460 from $8,485; R&D expenses net of grants rose 30%, reflecting increased in-house activity, staffing and depreciation. The company reported 47 more employees than the prior-year six-month average.
- Revenue declined by half year over year. Following an FDA clinical hold in June 2013 on the U.S. Phase II intermittent claudication study, lifted in September 2013, Pluristem extended the estimated United Therapeutics development period from 6.5 to 11.5 years and is recognizing the license fee straight-line over that longer period.
- Under its CHA agreement, Pluristem issued 2.5 million shares in exchange for 1,011,504 CHA shares, with approximately $10,414 attributed to each side. The reciprocal shareholdings are subject to a one-year transfer restriction. The CHA-funded South Korea Phase II intermittent claudication study was approved in November 2013.
- Pluristem had $28,776 of available-for-sale marketable securities, including its CHA investment, and recognized $899 of other comprehensive income for the six months. It reported no impairment charge on its marketable securities.
Outlook, risks and contingencies
- Management said existing cash and other liquidity resources were sufficient to fund operations for at least 12 months, while also stating that additional funding may be needed before operating cash flow can materially reduce reliance on current resources. Possible funding sources include grants, licensing, the ATM facility, other equity sales and marketable-security sales.
- The company does not expect product-sales revenue in the next 12 months; products may not be ready for sale for at least three years, if at all. Management expects near- and medium-term licensing revenue to be unlikely to exceed operating costs. No specific financial guidance was provided.
- Pluristem has sustained losses and expects them to continue. It had received approximately $13,891 in Israeli Office of the Chief Scientist grants; future qualifying product sales may trigger royalties of 3%–4% until grants, plus applicable interest, are repaid. The reported contingent OCS liability was $13,844; no royalties are due absent relevant revenue.
- Market risks include foreign-exchange movements and changes in the value of securities, particularly the unhedged CHA shares. Forward contracts hedged approximately $2,000 of future Israeli-shekel payroll costs and were scheduled to settle by May 2014. Management reported effective disclosure controls and no off-balance-sheet arrangements.
Important facts for investors to verify
- Clinical and regulatory progress, including follow-up to the previously lifted FDA hold and the status of the CHA-sponsored South Korea trial.
- Whether the extended United Therapeutics development period and revenue-recognition assumptions remain appropriate, and how license milestones or reimbursement conditions progress.
- Cash burn, grant receipts, and funding runway; reconcile management’s at-least-12-month liquidity statement with ongoing losses and potential financing needs.
- The valuation and liquidity risks of the CHA share investment, and the terms and actual use of the available $95 million ATM facility.
- The filing’s three-month MD&A comparison contains a reference to December 31, 2011, while the financial statements compare against December 31, 2012; the statement figures show the 2012 comparison.