Protalix Biotherapeutics, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Amounts are in U.S. dollars unless otherwise noted.
Business context
Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx plant-cell expression system. Its first approved product, taliglucerase alfa (ELELYSO) for Gaucher disease, was marketed by Pfizer in the United States and by Protalix in Israel. Taliglucerase alfa received Brazilian approval in March 2013; approvals were also reported in Israel, Mexico, Uruguay, Chile and other countries. The company retained Israeli commercialization rights and licensed worldwide rights outside Israel to Pfizer.
Pipeline programs included PRX-102 for Fabry disease in Phase I/II, PRX-105 following a completed Phase I trial, and PRX-112 in a Phase I study. The filing reported that the first patient in the PRX-112 study was treated in April 2013.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $3.568 million | $3.861 million |
| Share of collaboration income (loss) | $0.400 million | $(0.133) million |
| Cost of revenues | $0.971 million | $1.320 million |
| Gross profit | $2.997 million | $2.408 million |
| Net R&D expense, after grants and reimbursements | $5.323 million | $6.844 million |
| General and administrative expense | $2.103 million | $1.629 million |
| Operating loss | $(4.429) million | $(6.065) million |
| Net loss | $(4.321) million | $(5.904) million |
| Basic and diluted loss per share | $0.05 | $0.07 |
| Net cash used in operating activities | $9.586 million | $6.281 million |
Reported gross profit was approximately 84% of revenue; the reported gross-profit figure also reflects the collaboration-agreement line. Revenue included quarterly amortization of prior Pfizer upfront and milestone payments, Israeli product sales, and product deliveries to Pfizer. The filing does not provide a separate gross-margin percentage.
At March 31, 2013, cash and cash equivalents were $41.870 million, down from $52.035 million at December 31, 2012. Current assets were $52.894 million and current liabilities $24.408 million. Total liabilities were $76.225 million, including $55.585 million of deferred revenue; the filing lists no conventional borrowings or debt. Capital deficiency was $6.283 million. Inventory increased to $5.773 million from $4.039 million.
Operating cash use was higher year over year despite the smaller net loss, primarily reflecting decreases in deferred revenue and accounts payable and an inventory increase. Investing cash use was $0.689 million. There was no financing cash flow in Q1 2013; Q1 2012 financing cash inflow was $25.574 million, primarily from a share offering.
Material changes versus Q1 2012
- Revenue decreased 8% to $3.568 million. Collaboration results improved from a $0.133 million loss to $0.400 million of income, reflecting Protalix’s 40% share of collaboration net income for the period.
- Gross profit rose to $2.997 million from $2.408 million, while cost of revenues declined. The company attributed part of the cost profile change to capitalizing taliglucerase manufacturing costs after FDA approval in May 2012.
- Net R&D expense fell 22%, primarily due to lower overhead and materials costs and higher Pfizer reimbursements; this was partly offset by increased salary-related share-based compensation.
- General and administrative expense rose 29%, primarily due to salary expense and share-based compensation. Total share-based compensation was $1.367 million, compared with $0.129 million a year earlier.
- Net loss narrowed to $4.321 million from $5.904 million, but operating cash use increased. Cash fell $10.165 million during the quarter.
Outlook, risks and other notable items
Management believed available cash and current commitments would fund planned activities and capital needs for at least the next 12 months, while cautioning that unexpected expense increases or changed assumptions could require earlier financing. The company expected significant R&D spending to continue, including PRX-102, oral glucocerebrosidase and other candidates; it anticipated marginally higher G&A costs. No specific revenue, earnings or launch guidance was provided.
Management expected potential revenue support from Pfizer’s commercialization, Protalix’s Israeli sales and launches in additional markets, but noted that approvals, commercial uptake and adequate revenues were uncertain. The company had no commitments for future external funding and could seek equity, debt, grants or collaborations; financing might be unavailable on acceptable terms and equity issuance could dilute shareholders.
Key risks include regulatory delays or rejection, commercialization and market-acceptance uncertainty, dependence on Pfizer and other partners, clinical-development and financing needs, competition, intellectual-property and product-liability exposure, and operational disruption. The company reported no material legal proceedings, no material changes to previously disclosed risk factors, no off-balance-sheet arrangements, and effective disclosure controls as of quarter-end. It had not engaged in currency hedging.
Important facts for investors to verify
- Whether commercial sales in the United States, Israel and newly approved markets translate into sustained revenue and improved operating cash flow.
- The timing and terms of any long-term Brazilian Ministry of Health supply agreement; discussions were advanced, but no agreement was assured.
- Actual cash runway relative to the stated at-least-12-month estimate, given Q1 operating cash use of $9.586 million and the absence of committed future financing.
- Progress, costs and regulatory milestones for PRX-102, PRX-112 and other pipeline programs, and the extent of Pfizer reimbursements and collaboration economics.
- Inventory utilization, deferred-revenue recognition and the effect of manufacturing-cost capitalization on future reported margins.