Protalix BioTherapeutics, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited financial amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where shown. Protalix develops and commercializes plant-cell-produced therapeutic proteins. Its lead candidate, PRX-102, is in Phase III development for Fabry disease; taliglucerase alfa is marketed for Gaucher disease.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue from selling goods | $5.1 million | $0.7 million | $12.1 million | $7.2 million |
| License and R&D services revenue | $9.1 million | $11.7 million | $24.8 million | $16.7 million |
| Total revenue | $14.2 million | $12.3 million | $36.9 million | $23.9 million |
| Cost of goods sold | $3.2 million | $1.9 million | $7.9 million | $7.0 million |
| R&D expense, net | $10.0 million | $10.1 million | $35.0 million | $23.8 million |
| Operating loss | $1.5 million | $3.7 million | $12.9 million | $15.6 million |
| Net loss | $3.6 million | $5.3 million | $18.6 million | $21.0 million |
| Net loss per share | $0.02 | $0.04 | $0.13 | $0.14 |
Margins: The filing does not present a consolidated gross-margin measure. Cost of goods sold relates to product sales, while license and R&D services revenue is a separate revenue category.
- Cash and liquidity: Cash and cash equivalents were $21.4 million at September 30, 2019, down from $37.8 million at December 31, 2018. Current assets were $40.4 million and current liabilities $33.3 million, implying working capital of about $7.1 million.
- Cash flow: Operating activities used $15.7 million in the first nine months, versus $3.7 million used in the comparable 2018 period. Investing activities used $0.9 million. Cash declined by $16.4 million over the period.
- Debt and obligations: The company had $57.9 million principal amount of secured 7.50% convertible notes due 2021; the balance sheet reported convertible notes of $50.2 million. The notes require at least $7.5 million of cash. Total liabilities were $124.6 million, including $40.2 million of current and long-term contract liabilities.
- Capital position: Capital deficiency was $70.8 million at September 30, compared with $52.9 million at year-end 2018. Accumulated deficit was $341.1 million.
Changes versus comparable periods
- Nine-month total revenue rose about 55%, primarily from higher Brazilian product sales and revenue recognized under the Chiesi PRX-102 agreements. Q3 license and R&D revenue declined 22%, partly because Q3 2018 included a $6.2 million cumulative catch-up adjustment related to the Chiesi U.S. agreement.
- Nine-month R&D expense increased 47%, mainly from $8.5 million of additional clinical-trial costs and lower Israeli Innovation Authority grants. SG&A declined 21% for the nine months, largely because certain Chiesi U.S. agreement costs occurred in 2018.
- Despite lower net losses, operating cash use increased substantially, reflecting working-capital movements and the absence of the prior-period increase in contract liabilities associated with Chiesi receipts.
Outlook, developments and risks
- Protalix and Chiesi planned to submit a PRX-102 U.S. biologics license application through the FDA Accelerated Approval pathway by April 2020. This depended on FDA acceptance of the proposed data and pathway; approval was not assured.
- Enrollment was complete in the BALANCE, BRIDGE and BRIGHT Phase III studies. The company reported positive 12-month interim BRIDGE data announced October 17, 2019, including improvement in mean annualized eGFR slope after patients switched to PRX-102. These were interim clinical findings, not regulatory approval.
- Management stated that existing cash and commitments might not support planned development activities for the next 12 months without refinancing or restructuring, and disclosed substantial doubt about the company’s ability to continue as a going concern. Failure to secure funding could require curtailing or ceasing operations.
- Management was evaluating refinancing, restructuring and other strategic alternatives; no funding commitment was disclosed. The company had engaged a financial adviser and was pursuing a plan to regain NYSE American listing compliance. The exchange deficiency letter had no immediate effect on trading, but delisting remained a risk.
- Subsequent to quarter-end, Protalix received approximately $2.6 million in Chiesi expense reimbursements and $3.2 million from Fiocruz product sales in October 2019; these receipts were not part of September 30 cash.
- Other risks include clinical and regulatory uncertainty, reliance on partners and third-party suppliers, debt service, competition, currency exposure, and the ability to commercialize products. The company reported no material legal proceedings and said disclosure controls were effective.
Important facts for investors to verify
- Whether Protalix completed a refinancing, restructuring or strategic transaction sufficient to address going-concern concerns and the 2021 notes.
- Cash runway and covenant headroom after the October receipts, including the minimum-cash requirement and upcoming debt obligations.
- FDA feedback on the proposed PRX-102 Accelerated Approval application, actual filing timing, and the status and full results of the Phase III program.
- Progress toward NYSE American compliance and any effect on the common-stock listing.
- Timing and collectability of Chiesi development reimbursements, milestones and future contract-liability revenue recognition, along with Fiocruz sales and payments.