Protalix BioTherapeutics, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Figures are unaudited and in U.S. dollars; financial statement amounts below are in millions unless noted.
Business context
Protalix develops and manufactures recombinant therapeutic proteins using its plant-cell ProCellEx platform. Its key commercial development was the May 2023 FDA and European Commission approval of Elfabrio (pegunigalsidase alfa) for adults with Fabry disease. Chiesi is its development and commercialization partner for Elfabrio; Protalix manufactures drug substance. Protalix also receives revenue from taliglucerase alfa, marketed by Pfizer outside Brazil and supplied to Fiocruz in Brazil.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Total revenue | $35.1 | $8.8 | $44.7 | $24.8 |
| Operating income (loss) | $20.4 | ($5.5) | $18.0 | ($7.4) |
| Net income (loss) | $19.3 | ($5.3) | $16.2 | ($7.6) |
| Operating cash flow | Not separately reported for the quarter | $2.0 | ($13.2) |
- Revenue mix: Q2 product sales were $15.1 million, including $11.7 million from Chiesi; license and R&D services revenue was $20.0 million, including the milestone earned upon FDA approval of Elfabrio. First-half product sales were $20.1 million and license and R&D services revenue was $24.5 million.
- Margins: Q2 gross margin was approximately 82% and operating margin approximately 58%; first-half gross margin was approximately 79% and operating margin approximately 40%. These figures include milestone-related and product mix effects and are calculated from reported revenue and cost of goods sold or operating income.
- Expenses: First-half R&D expense declined 37% to $10.3 million, primarily because the Fabry clinical program and Elfabrio regulatory reviews were completed. SG&A rose 22% to $7.1 million, including higher compensation, professional fees and travel. First-half net financial expense was $1.3 million.
- Cash and working capital: Cash and cash equivalents were $48.2 million at June 30, versus $17.1 million at year-end 2022; short-term bank deposits were nil, versus $5.1 million. Current assets were $73.6 million and current liabilities $23.1 million. Inventory increased to $19.6 million from $16.8 million.
- Cash flows: First-half investing activities provided $4.5 million, mainly from deposit proceeds; financing activities provided $24.7 million, mainly from ATM stock sales. Cash increased $31.1 million to $48.2 million.
- Debt: The 7.50% senior secured convertible notes mature September 1, 2024. Remaining principal was approximately $20.4 million at June 30, down approximately $8.3 million after conversions. The notes are secured by liens on company assets; the company reported compliance with the $7.5 million minimum-cash covenant.
Material changes versus the prior comparable period
- Revenue rose sharply, largely reflecting Elfabrio’s approval: Q2 included $20.0 million of Chiesi milestone revenue and $11.7 million of Chiesi product sales. The company began recognizing manufacturing revenue following regulatory approval.
- Operating and net results moved from losses to profits in both Q2 and the first half. The first-half net result also included a $3.1 million deferred-tax benefit from releasing a U.S. valuation allowance; this was not operating cash generation.
- First-half operating cash flow improved to $2.0 million from cash use of $13.2 million, but was affected by a $13.2 million decrease in contract liabilities and higher inventory.
- The company raised approximately $24.9 million gross through ATM sales in the first half, issuing 12.6 million shares, and issued 4.7 million shares upon note conversions. Shares outstanding were 71.6 million at June 30, compared with 53.8 million at year-end 2022.
Outlook, risks and unusual items
- Management stated that available cash was expected to fund capital needs for at least 12 months from issuance of the financial statements. It expects continued significant R&D spending and said R&D should remain its primary expense as other candidates advance. No specific revenue, earnings or cash-flow guidance was provided.
- Management cited Chiesi’s progress in commercializing Elfabrio, future R&D and trial costs, regulatory outcomes, and potential financing needs as factors affecting future capital requirements. Approximately $6.4 million of gross proceeds remained available under the 2023 ATM agreement at June 30.
- Elfabrio’s FDA approval includes a boxed warning for hypersensitivity reactions, including anaphylaxis, and warnings concerning infusion reactions and possible membranoproliferative glomerulonephritis. The FDA review concluded the BALANCE study met its primary endpoint but did not support a non-inferiority claim because data did not support a non-inferiority margin. Commercial acceptance, reimbursement, competition and post-approval requirements remain risks.
- The company reported no material legal proceedings, no defaults, and no material changes to previously disclosed risk factors other than the added product-safety risk discussion. It reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts investors should verify
- Whether Elfabrio launches, patient uptake, reimbursement and Chiesi sales generate sustained product-supply revenue and milestone or royalty payments.
- Cash burn and working-capital trends, particularly inventory and contract-liability movements, against management’s 12-month liquidity assessment.
- How the company will repay, refinance or otherwise address the approximately $20.4 million of secured notes due September 2024, and the effect of further equity issuance on shareholders.
- Post-marketing safety and regulatory obligations for Elfabrio, including the boxed warning and pregnancy/lactation study requirements.
- The filing gives differing PRX-115 trial enrollment counts: 13 patients in the financial-statement note and 16 in MD&A; confirm the current figure with subsequent disclosures.