PluriStem Therapeutics Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2012, the first quarter of fiscal 2013 (not calendar-year Q1). The interim financial statements are unaudited and amounts below are in U.S. dollars unless stated otherwise.
Business context and financial performance
Pluristem is a development-stage biotherapeutics company developing placenta-derived cell therapies, including PLX-PAD. It reported limited licensing-related revenue and continued operating losses; it does not expect product-sale revenue in the next 12 months, and says products may not be ready for sale for at least three years, if at all.
| Metric | Three months ended Sep. 30, 2012 | Prior-year period |
|---|---|---|
| Revenue | $0.195 million | $0.154 million |
| Gross profit | $0.189 million; approximately 97% gross margin | $0.149 million |
| Net R&D expense | $2.698 million | $2.844 million |
| General and administrative expense | $1.681 million | $1.637 million |
| Operating loss | $4.190 million | $4.332 million |
| Financial income (expense), net | $0.195 million income | $0.161 million expense |
| Net loss / loss per share | $3.995 million / $0.08 | $4.493 million / $0.11 |
| Operating cash flow | $3.522 million used | $3.461 million provided |
| Investing cash flow | $2.610 million used | $32.980 million used |
| Financing cash flow | $35.494 million provided | $0.323 million provided |
Liquidity, capitalization, and material changes
- At September 30, cash and cash equivalents were $38.751 million, short-term bank deposits $21.434 million, and marketable securities $8.129 million. Current assets were $69.982 million versus current liabilities of $5.232 million, yielding reported working capital of $64.750 million. Total assets were $81.444 million and stockholders’ equity $72.193 million.
- The filing reports no conventional interest-bearing debt balance. Liabilities included deferred revenue, payables, accrued expenses, and an advance payment from United Therapeutics; commitments and contingencies are discussed in the notes.
- Net loss narrowed by $0.498 million year over year. Revenue rose 27%, mainly because recognition under the United Therapeutics agreement began in August 2011. Net R&D expense fell 5%, reflecting higher grant participation, partly offset by increased in-house and clinical/preclinical activity. G&A rose 3%, mainly due to stock compensation.
- The company raised $34.106 million net in a September public offering, including the underwriters’ fully exercised option. The offering comprised 9.2 million common shares in total and warrants; offering warrants cover 0.35 shares each at a $5 exercise price and are exercisable beginning March 19, 2013. Shares outstanding were 57.257 million at quarter-end and 57.403 million as of October 29, 2012.
- Cash increased by $29.362 million during the quarter, primarily due to offering proceeds. Capital spending and construction-related payments included $1.978 million of property and equipment purchases. Stock-based compensation included a $1.400 million noncash charge to a contractor.
Outlook, risks, and unusual items
- Management believes existing cash is sufficient for at least the next 12 months, but says additional funding may be needed before operating cash flow can materially reduce reliance on existing liquidity. Potential funding sources include equity, licensing agreements, and grants.
- The company expects continuing losses and does not expect product-sale revenue in the next 12 months. Near- and medium-term licensing revenue is expected to be unlikely to exceed operating costs. Profitability, if achieved, is not assured.
- Key execution risks include clinical-study results and product safety and efficacy, development and commercialization timelines, manufacturing scale-up, reliance on external funding, and uncertainty around grants and licensing relationships. OCS grants carry royalties of 3%–5% on qualifying product and service sales until the grant amount plus interest is repaid.
- Financial income improved partly because of currency movements, hedging transactions, and interest earned on larger cash balances. The company uses foreign-currency forwards and options; derivatives were recorded as a $15,000 asset at quarter-end, versus a $138,000 liability at June 30, 2012.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm clinical and regulatory milestones, study outcomes, and the timeline and cost of establishing in-house manufacturing capacity.
- Assess the adequacy and accessibility of cash, deposits, and securities against the stated at-least-12-month runway and expected quarterly cash use.
- Review dilution from the public-offering warrants, outstanding options and other equity awards, and any future financing.
- Verify the terms, remaining obligations, and revenue-recognition outlook of the United Therapeutics agreement and the conditions attached to OCS grants.
- Reconcile the warrant-exercise share count: the financial-statement note reports 479,532 cashless exercises, while MD&A reports 479,032; both describe 287,483 shares issued.