Protalix BioTherapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited financial statements; amounts below are U.S. dollars unless otherwise noted.
Business context
Protalix develops and manufactures recombinant therapeutic proteins using its plant-cell ProCellEx platform. Its key commercial development is Elfabrio (pegunigalsidase alfa) for adult Fabry disease, commercialized with Chiesi; the FDA and European Commission approved it in May 2023, with approvals in Great Britain and Switzerland later in 2023. Protalix also supplies taliglucerase alfa (Elelyso/BioManguinhos alfataliglicerase) and is advancing PRX-115 for severe gout and PRX-119 for NETs-related diseases.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $10.3 million | $14.2 million | $55.0 million | $39.0 million |
| Operating income (loss) | $(1.9) million | $(3.1) million | $16.1 million | $(10.5) million |
| Net income (loss) | $(1.9) million | $(3.6) million | $14.4 million | $(11.2) million |
| Basic EPS | $(0.03) | $(0.07) | $0.22 | $(0.24) |
Q3 selling-goods revenue increased 16% to $10.2 million, while license and R&D services revenue declined to $0.2 million from $5.4 million. Nine-month selling-goods revenue grew 43% to $30.3 million. Nine-month license and R&D revenue was $24.7 million, including a $20 million FDA-approval milestone from Chiesi.
Cost of goods sold was $4.9 million in Q3 and $14.1 million for the first nine months. R&D expense declined 50% year over year in Q3 and 41% for the nine-month period, primarily following completion of the Fabry clinical program and regulatory review. SG&A increased 32% in Q3 and 26% year to date, partly due to bonuses and share-based compensation. The nine-month net profit also included a $3.1 million deferred-tax benefit from releasing a U.S. valuation allowance; income-tax expense was $0.6 million overall.
At September 30, cash and cash equivalents were $20.4 million and short-term bank deposits were $20.6 million, totaling $41.0 million. Working capital was approximately $29.3 million. Nine-month operating cash use was $4.9 million, investing cash use was $16.4 million, and financing provided $24.7 million, principally from ATM share sales. Cash and cash equivalents increased by $3.3 million during the period. Management said available funds were sufficient for at least 12 months from issuance of the financial statements.
Convertible notes had $20.4 million aggregate principal outstanding at September 30, 2023, bear 7.50% interest, mature September 1, 2024, and are secured by liens on company assets. The notes require a minimum cash balance of $7.5 million; the company reported compliance with covenants. The balance sheet reports $20.2 million of notes as current. No off-balance-sheet arrangements were reported.
Changes, outlook, and key risks
- The nine-month shift to profitability principally reflects the $20 million Chiesi milestone and growth in product sales; it should not be read as evidence of recurring operating profitability. Q3 remained loss-making.
- Cash from operations improved versus $22.4 million used in the first nine months of 2022, but working-capital movements included a $13.2 million decrease in contract liabilities, a $4.8 million inventory increase, and a $4.2 million increase in receivables and other assets.
- The company raised approximately $24.9 million gross through its ATM program in the first half, issuing 12.6 million shares; no ATM shares were sold in Q3. Approximately $6.4 million of gross ATM capacity remained at quarter-end. Note conversions also reduced note principal by about $8.3 million and issued 4.7 million shares. Outstanding common shares were 72.95 million at September 30.
- Management expects continued significant R&D spending and identifies clinical-trial, payroll, manufacturing, debt-service, and tax costs among its future cash needs. It may need additional financing; no formal revenue or earnings guidance is provided. The PRX-115 Phase I trial had dosed 32 patients by September 30.
- Elfabrio’s FDA label includes a boxed warning for hypersensitivity/anaphylaxis and warnings concerning infusion reactions and membranoproliferative glomerulonephritis. The FDA found the BALANCE study met its primary endpoint but said it did not support a non-inferiority claim against the comparator.
- Protalix’s operations are based in Israel. The filing says the October 2023 conflict had not disrupted operations to date, but its duration and effects are uncertain; military-service absences, facility or logistics disruption, and limited insurance for conflict-related damage are risks. The company also cites commercialization, reimbursement, partner, competition, clinical-development, supply-chain, and financing risks.
- Subsequent to quarter-end, the company collected approximately $6.4 million from Chiesi on October 4. It reported no material legal proceedings and said disclosure controls were effective.
Important facts for investors to verify
- Whether Elfabrio launches, prescriptions, reimbursement, and Chiesi product purchases translate into sustained revenue and cash receipts.
- How much of reported nine-month profit depends on the one-time $20 million milestone and $3.1 million tax benefit, versus recurring product economics.
- Cash burn, remaining ATM capacity, share-count dilution, and the company’s plan for the $20.4 million notes due September 2024.
- Whether inventory and receivables convert to cash, and whether cash remains comfortably above the $7.5 million covenant minimum.
- Any operational, employee, supplier, or shipping effects from the Israel conflict, and developments in clinical trials and product safety.