Pluristem Therapeutics Inc. — Form 10-Q summary
Reporting period: Three months ended September 30, 2017, the company’s first quarter of fiscal 2018. The filing is unaudited; amounts below are U.S. dollars in thousands unless stated otherwise. The supplied metadata labels the period “2017 Q1,” but the filing itself reports the quarter ended September 30, 2017.
Business context
Pluristem is a clinical-stage biotherapeutics company developing placenta-derived cell therapies, including PLX-PAD and PLX-R18. It reported no product sales and does not expect product-sale revenue in the next 12 months. Its key programs include a Phase III PLX-PAD trial for critical limb ischemia (CLI), planned pivotal development for recovery after femoral neck fracture, and PLX-R18 development for acute radiation syndrome and hematopoietic recovery.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2017 | Comparable 2016 quarter |
|---|---|---|
| Revenue | No product revenue reported | No product revenue reported |
| Net R&D expense | $4,677 | $4,998 |
| General and administrative expense | $2,763 | $1,564 |
| Operating loss | $7,440 | $6,562 |
| Net financial income | $55 | $238 |
| Net loss | $7,385 | $6,324 |
| Basic and diluted loss per share | $0.08 | $0.08 |
| Cash used in operating activities | $5,190 | $3,923 |
At September 30, 2017, total assets were $30,954, current assets $22,841, current liabilities $4,771, working capital $18,070, and stockholders’ equity $24,364. Cash, cash equivalents, short-term deposits, and marketable securities totaled approximately $20,746; cash and cash equivalents alone were $12,294. The filing presents no borrowings or conventional debt balance; liabilities primarily comprise payables, accruals, severance, and other liabilities. No gross margin is meaningful because the company reported no product revenue.
Operating cash outflow was partly offset by $11,727 of investing cash inflow, mainly from sales/redemptions of marketable securities and withdrawal of short-term deposits, and $1,050 of financing cash inflow, largely ATM share sales. Cash and cash equivalents increased by $7,587 during the quarter. The company recorded an $850 other-than-temporary impairment loss on marketable securities; the quarter also included a $1,055 other comprehensive loss, principally from unrealized investment losses.
Changes versus the prior comparable quarter
- Net R&D expense fell 6%, reflecting lower subcontractor, preclinical, and materials costs and EU grant participation, partly offset by lower IIA participation and higher payroll costs.
- G&A expense rose 77%, mainly due to higher stock-based compensation, payroll, employee count, and corporate activity.
- Operating loss increased from $6,562 to $7,440, and net loss increased from $6,324 to $7,385. Loss per share remained $0.08, while weighted-average shares rose to 97.3 million from 80.7 million.
- Operating cash use increased to $5,190 from $3,923. The quarter’s cash increase relied substantially on liquidating or withdrawing investments and deposits, as well as equity issuance.
Outlook, risks, and notable items
- Management said September 30 liquidity, together with net proceeds from the October 31, 2017 public offering, was expected to fund operations into the third quarter of fiscal 2019. The offering raised approximately $13,674 net through the sale of 9 million shares at $1.67 each.
- Management stated that additional liquidity will be needed to support commercialization, R&D, and clinical trials. Funding options include equity sales, licensing, IIA and EU grants, and other grants; there is no assurance that adequate funding will be obtained. A cost-reduction plan may be needed if additional capital is unavailable.
- The company reported recurring operating losses and negative operating cash flows since inception, with an accumulated deficit of $196,956. It warned that inability to raise funds could severely affect its viability.
- Clinical and regulatory outcomes remain uncertain. The CLI Phase III trial was underway, with an interim efficacy analysis planned after the first 125 of an estimated 250 patients; FDA fast-track designation does not assure approval. Other trials, grants, and the proposed Japan joint venture remain subject to execution, funding, or final agreements.
- In September 2017, the company signed an agreement for a Phase I/II PLX-PAD trial in steroid-refractory chronic graft-versus-host disease. A new EU consortium grant for PLX-PAD femoral-neck-fracture development was announced; the filing describes a €7.4 million award, including €2.4 million allocated directly to the company. An additional nTRACK grant was subject to final consortium and grant agreements.
- IIA grants generally carry contingent royalties of 3%–4% on eligible product sales until repayment, with interest. The filing reports $25,652 of contingent IIA royalty liability in the notes, while the MD&A states total IIA grants of approximately $28,818; the figures should be reconciled. The company also disclosed a $229 Smart Money grant with regional royalties and a GvHD trial agreement with up to approximately $250 in royalties.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Reconcile the differing IIA grant totals in the notes and MD&A, and confirm the applicable contingent royalty balance and terms.
- Confirm the net cash proceeds, share count, and dilution from the October 31 offering and the remaining availability under the ATM and shelf registrations.
- Assess the assumptions underlying management’s runway estimate through Q3 fiscal 2019, including planned trial spending, grant receipts, and any required cost reductions.
- Track enrollment, interim analysis timing, and clinical and regulatory progress for the CLI Phase III trial and other lead programs; fast-track status is not an approval.
- Review the marketable-securities impairment, remaining investment concentration, and exposure to currency movements and derivative valuation changes.