Protalix BioTherapeutics, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are with December 31, 2017. Amounts are U.S. dollars. Protalix develops and commercializes recombinant therapeutic proteins using its ProCellEx platform. Its marketed taliglucerase alfa is sold as Elelyso outside Brazil and as alfataliglicerase in Brazil and certain other Latin American markets.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $4.553 million | $2.889 million |
| Gross profit / gross margin | $1.629 million / 35.8% | $0.801 million / 27.7% |
| Net R&D expense | $6.443 million | $4.629 million |
| SG&A expense | $2.498 million | $2.537 million |
| Operating loss | $7.312 million | $6.365 million |
| Net loss | $9.400 million | $59.148 million |
| Basic and diluted loss per share | $0.06 | $0.48 |
| Net cash used in operating activities | $9.413 million | $8.426 million |
Revenue rose 58%, primarily from a $1.3 million increase in Brazilian drug-product sales. Cost of revenue increased to $2.924 million, mainly with higher Brazil sales. Net R&D expense increased 39%, chiefly because clinical-trial costs rose $1.6 million. The much smaller net loss chiefly reflects the absence of the $52.3 million 2017 charge from remeasuring the embedded derivative in convertible notes; it does not indicate improved operating profitability.
Financial position and liquidity
- Cash and cash equivalents were $41.319 million, down from $51.163 million at year-end; total current assets were $55.688 million and current liabilities $21.499 million, for working capital of approximately $34.189 million.
- Total liabilities were $104.236 million. Convertible notes had a $52.038 million carrying value on the balance sheet; disclosed principal outstanding was $58.1 million on the 7.50% notes due 2021 and $5.9 million on the 4.50% notes due 2018.
- Operating cash use was $9.413 million and investing cash use was $0.328 million. Cash declined $9.844 million during the quarter. The company reported no financing cash flow in Q1 2018.
- Management stated that existing cash and resources were expected to support planned activities for at least 12 months from approval of the financial statements, while warning that assumptions could change and additional financing might be needed.
Material developments, outlook, and risks
- Brazil accounted for $2.573 million of Q1 revenue; Pfizer-related revenue was $1.980 million. Protalix reported $2.6 million of Q1 sales to Fiocruz under a Brazilian government purchase order of approximately $24.3 million. Fiocruz purchases had been below contractual milestones, giving Protalix a termination right; the company was discussing compliance options and continued supplying product.
- Under its Chiesi agreement, Chiesi holds ex-U.S. commercialization rights to PRX-102 (pegunigalsidase alfa), while Protalix retains U.S. rights. Chiesi paid a $25 million upfront amount in 2017; the filing says this payment and qualifying development reimbursements and milestones are deferred until commercial manufacturing begins. The agreement provides for up to $25 million in development-cost payments and up to $320 million in regulatory and commercial milestones, plus tiered payments tied to sales.
- PRX-102 was in Phase III trials for Fabry disease and received FDA Fast Track designation in January 2018; it had also received EU orphan-drug designation. PRX-110 completed a Phase IIa study for cystic fibrosis, and final Phase II data for oral candidate OPRX-106 in ulcerative colitis were released in March 2018.
- Management expected R&D to remain the primary expense, particularly due to PRX-102 trials. It gave no numerical revenue or earnings guidance. Additional funding could be required; equity financing could dilute shareholders, while debt could add fixed obligations and restrictive covenants.
- Key risks include clinical and regulatory setbacks, financing and debt-service needs, dependence on collaborators and third-party suppliers, Pfizer supply commitments, and Fiocruz’s purchase obligations. The filing specifically identifies the ability to defease the remaining 4.50% notes on or before June 16, 2018 as a risk. It reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Progress and outcomes of PRX-102 Phase III trials, and the timing and requirements for U.S. and ex-U.S. regulatory filings.
- Fiocruz’s compliance with purchase milestones, expected shipments, and whether the Brazil agreement remains in force.
- Cash runway versus clinical and operating spending, and any financing plans or changes to management’s 12-month liquidity assessment.
- Status, maturity, conversion, repayment, or defeasance of the 2018 notes, along with terms and servicing needs of the 2021 notes.
- Revenue recognition and future cash receipts under the Chiesi agreement, including development reimbursements, milestones, and eventual commercial manufacturing.