Protalix BioTherapeutics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. Amounts are U.S. dollars unless noted. Protalix develops and commercializes plant-cell-produced therapeutic proteins, including marketed taliglucerase alfa and investigational PRX-102 for Fabry disease.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Total revenue | $21.6 million | $10.4 million |
| Operating income (loss) | $4.7 million | $(5.5) million |
| Net income (loss) | $1.7 million | $(7.3) million |
| Net income (loss) per share, basic and diluted | $0.10 | $(0.50) |
| Net cash used in operations | $7.1 million | $7.3 million |
| Cash and cash equivalents | $14.2 million | $17.8 million at Dec. 31, 2019 |
| Short- and long-term bank deposits | $35.0 million | None reported at Dec. 31, 2019 |
| Total current assets / current liabilities | $57.8 million / $47.6 million | $32.5 million / $40.2 million at Dec. 31, 2019 |
Goods revenue was $5.0 million, up 43%; license and R&D services revenue was $16.6 million, up 140%. Cost of goods sold was $3.4 million; gross margin was approximately 32% of total revenue. R&D expense was $10.3 million, down 12%, while SG&A rose 43% to $3.2 million. Net financial expense increased 75% to $3.0 million, primarily reflecting convertible-note costs. The filing does not provide a separate stated operating or net margin.
Operating cash use was partly offset by $38.6 million of net financing proceeds from the March stock-and-warrant offering. Investing cash use was $35.1 million, primarily from placing funds in bank deposits. Cash and equivalents declined $3.6 million during the quarter. Current assets exceeded current liabilities by approximately $10.1 million; cash plus bank deposits totaled $49.2 million.
Outstanding 2021 convertible notes had $57.9 million aggregate principal, bear 7.50% interest, mature in November 2021, and are secured by a lien on company assets. The notes require a minimum cash balance of $7.5 million. The company also reported a $4.3 million current promissory note. Total liabilities were $113.8 million, and capital deficiency was $30.9 million at quarter-end.
Material changes and unusual items
- Total revenue more than doubled year over year. Goods sales increased mainly from Brazil and Pfizer; license/R&D revenue rose with Chiesi collaboration activity.
- Q1 2020 included $6.7 million of Chiesi-related revenue from a change in the estimate of total expected costs to complete the relevant work. This estimate-driven recognition contributed materially to the quarter’s profit.
- On March 18, the company completed a private placement of approximately 17.6 million shares and warrants for approximately $41.3 million in net committed proceeds. The warrants cover an additional approximately 17.6 million shares at $2.36 per share. The offering substantially increased shares outstanding.
- Accounts receivable increased to $8.9 million from $4.7 million at year-end; inventory rose to $9.5 million from $8.2 million. Contracts liabilities totaled $26.1 million, down from $33.3 million at year-end.
- After quarter-end, the company reported collecting approximately $9.0 million of receivables: $4.7 million related to Chiesi, $3.0 million from Brazil sales, and $1.3 million from Pfizer.
Outlook, developments and risks
Management said available funds were sufficient for at least 12 months from issuance of the financial statements, while anticipating significant spending, particularly on PRX-102 clinical development, and material cash needs over the next 24 months. Management was evaluating refinancing and restructuring alternatives for the convertible notes; there was no certainty that funding could be obtained. The company may need additional capital and disclosed no committed external funding apart from potential Chiesi development and milestone payments.
After quarter-end, Protalix and Chiesi reported positive topline BRIDGE trial results on May 11 and submitted a U.S. BLA for PRX-102 through the FDA Accelerated Approval pathway on May 27. FDA acceptance or approval is not assured; regulatory authorities may require additional data or conditions. Chiesi agreements provide for potential development reimbursements, milestones, and tiered payments, but these are contingent on contractual and regulatory outcomes.
Management said trials had not been adversely affected by COVID-19 as of the filing, but noted operational adjustments, minor administrative delays, and potential risks to trials, manufacturing, suppliers, and hospital-based research. Other material risks include the NYSE American listing deficiency, ability to service debt, Fiocruz purchase obligations and possible Brazil-agreement termination, dependence on partners and suppliers, clinical and regulatory uncertainty, and competition. The company disclosed no material legal proceedings or off-balance-sheet arrangements. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether the FDA accepts and ultimately approves the PRX-102 BLA, and the timing and conditions of review.
- How much of Q1’s $16.6 million license/R&D revenue and $1.7 million profit reflects the $6.7 million change in cost estimate, and whether similar revenue is repeatable.
- Cash availability relative to the $7.5 million covenant, operating cash burn, debt service, and the November 2021 note maturity; monitor refinancing or restructuring progress.
- Actual proceeds received from the offering and post-quarter receivable collections, as well as potential dilution from warrants and other securities.
- Whether COVID-19, Fiocruz purchasing, or other partner, supplier, clinical, and listing-related risks materially affect operations or financing.