Pluristem Therapeutics Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2011 (fiscal 2012 first quarter); filed November 9, 2011. Financial amounts are in U.S. dollars in thousands unless noted. The company develops placenta-derived cell therapies and reported that it ceased being a development-stage company in July 2011.
Financial performance and position
| Metric | Quarter ended September 30, 2011 | Comparable 2010 quarter |
|---|---|---|
| Revenue | $154 | $0 |
| Net research and development expense | $2,849 | $998 |
| General and administrative expense | $1,637 | $756 |
| Operating loss | $4,332 | $1,754 |
| Net loss | $4,493 | $1,689 |
| Basic and diluted loss per share | $0.11 | $0.08 |
| Net cash from (used in) operating activities | $3,461 | $(688) |
Revenue was the first recognized under the United Therapeutics license agreement; it represents straight-line recognition of the $5 million nonrefundable upfront license fee over an estimated 5.5-year development period. No product-sales revenue was reported. Gross margin is not presented.
At September 30, cash and cash equivalents were $13,633; short-term deposits were $31,658; and marketable securities were $513. Current assets totaled $46,363 against current liabilities of $5,045, for reported working capital of $41,318. Total assets were $49,844 and stockholders’ equity was $40,294. Accumulated deficit was $55,446. The balance sheet reports no borrowings; liabilities included deferred revenue and severance obligations.
Cash and cash equivalents fell $29,196 from June 30, primarily because the company placed funds in short- and long-term deposits and marketable securities. Investing activities used $32,980; financing activities provided $323, principally from option and warrant exercises. Operating cash generation included the United Therapeutics receipts and is not indicative of recurring operating cash flow.
Changes versus the prior comparable period
- Revenue rose from zero to $154 following the United Therapeutics agreement, while net loss increased from $1,689 to $4,493.
- Net R&D expense increased 185% to $2,849. Management cited increased internal R&D, clinical and preclinical trial costs, 20 hires since September 2010, and lower Office of the Chief Scientist (OCS) participation while a grant application remained unapproved.
- G&A expense increased 116% to $1,637, mainly due to higher stock-based compensation and costs associated with the United agreement, including bonuses and legal fees.
- Weighted-average shares rose to 42.8 million from 21.0 million, reflecting offerings since September 2010 and exercises of warrants and options.
Outlook, developments and risks
- The June 2011 exclusive worldwide PAH license with United Therapeutics became effective in August. Pluristem received $7 million, including a $5 million nonrefundable fee and a $2 million refundable development advance. The agreement also provides for up to $37.5 million in regulatory milestones, up to $10 million in qualifying North American manufacturing reimbursements, development-cost reimbursement, and potential royalties and commercial supply sales.
- Management said existing funds were expected to support operations until approximately the end of fiscal 2014, but that additional financing may be needed before operating cash flow materially reduces dependence on current resources. Funding plans include equity, licenses, and grants. The company did not expect product-sales revenue within the next 12 months and said products were unlikely to be ready for sale for at least three years, if ever.
- The OCS had not approved the company’s application for a sixth-year R&D program; future grant approval and amount were uncertain. The company reported ongoing operating losses and no assurance of achieving or sustaining profitability.
- A new GMP manufacturing facility is planned near the company’s Haifa headquarters. The October 2011 construction agreement provides for approximately NIS 22.8 million (about $6.25 million) plus VAT, with planned completion in calendar Q4 2012. Payment may include up to 2 million shares; termination for convenience may require a $250,000 penalty plus payment for work performed. These are planned costs, not a reported quarter expense.
- In November 2011, after the quarter, Pluristem announced 12-month follow-up results from two open-label Phase I CLI studies: 4 events among 27 patients and an 85.2% amputation-free survival rate, compared with 66.8% historical data. The filing notes the studies had no control groups, so the historical comparison is not controlled evidence.
- The FDA granted orphan-drug designation for Buerger’s disease in August; a European application was pending. The company also reported promising animal-study findings for acute radiation syndrome. These developments do not establish clinical efficacy.
- The company pledged $686 to secure hedging transactions, a credit line and bank guarantees, and issued an additional approximately $263 bank guarantee related to the facility lease. Management reported effective disclosure controls and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the OCS approves the pending grant and the amount of any award.
- Timing and achievement conditions for United Therapeutics milestones, reimbursement, and future commercial economics; verify the assumptions behind the 5.5-year revenue-recognition period.
- Manufacturing-facility construction costs, schedule, funding, and any share issuance under the construction agreement.
- Clinical-trial design, follow-up, safety and efficacy data, and the limitations of comparisons with historical controls.
- Cash runway and financing needs, including the effect of continued losses and potential dilution from equity issuance, options, warrants, and facility-payment shares.