Protalix BioTherapeutics, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Amounts below are U.S. dollars; financial-statement figures are in thousands unless noted. The company develops and commercializes recombinant therapeutic proteins using its ProCellEx platform. Its pipeline includes PRX-102 for Fabry disease, PRX-110 for cystic fibrosis, and OPRX-106 for ulcerative colitis. Taliglucerase alfa is marketed by Pfizer outside Brazil; Protalix retains Brazilian rights.
Financial results and position
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenue | $0.663 million | $7.526 million | $7.222 million | $16.773 million |
| Gross profit (loss) | ($1.254 million) | $1.460 million | $0.198 million | $3.096 million |
| Net R&D expense, after grants | $10.071 million | $6.389 million | $23.755 million | $19.844 million |
| Operating loss | $13.963 million | $7.765 million | $30.851 million | $24.935 million |
| Net financial expense | $1.581 million | $3.672 million | $5.387 million | $45.200 million |
| Net loss | $15.544 million | $11.437 million | $36.238 million | $70.135 million |
| Basic and diluted loss per share | $0.10 | $0.09 | $0.25 | $0.55 |
- Revenue fell 57% in the first nine months, reflecting decreases of $5.6 million in Pfizer drug-substance sales and $4.0 million in Brazilian product sales. Nine-month revenue comprised $4.649 million from Pfizer and $2.573 million from Brazil.
- Q3 gross loss reflected cost of revenues of $1.917 million against revenue of $0.663 million. Management attributed lower cost of revenues year over year to lower sales volumes.
- For the first nine months, net R&D expense increased 20%, primarily due to increased clinical-trial activity; SG&A declined 11% to $7.294 million.
- Nine-month net loss improved year over year mainly because 2017 included a $38.061 million fair-value charge on the convertible-note embedded derivative. Q3 net loss increased year over year despite lower net financial expense, as operating loss widened.
- Cash and cash equivalents were $41.868 million at September 30, down from $51.163 million at December 31, 2017. Total assets were $67.197 million; total liabilities were $132.191 million, leaving a capital deficiency of $64.994 million.
- Current assets were $57.340 million and current liabilities $14.551 million. Long-term liabilities included $47.320 million of convertible notes and $61.780 million of deferred revenue.
- Cash used in operating activities was $3.738 million for nine months, versus $27.584 million in 2017; cash used in investing activities was $0.675 million and cash used in financing activities was $4.752 million. Operating cash use benefited substantially from a $34.929 million increase in deferred revenue, including Chiesi payments received but not recognized as revenue.
- Approximately $58.0 million principal amount of 7.5% secured convertible notes due 2021 remained outstanding. Their estimated fair value was approximately $78.0 million. The 4.5% notes due 2018 matured and were paid in full in September 2018.
Material developments, outlook and risks
- In July 2018, Protalix granted Chiesi exclusive U.S. rights to develop and commercialize PRX-102. Chiesi paid a $25 million upfront amount; the agreement also provides up to $20 million in development-cost payments and up to $760 million in regulatory and commercial milestones. The separate ex-U.S. agreement provides for a $25 million upfront payment, up to $25 million in development-cost payments, and up to $320 million in milestones. These potential payments are contingent, not assured revenue; payments received before the relevant obligation is satisfied are deferred.
- PRX-102 was in Phase III trials; the company reported FDA Fast Track designation and EU orphan-drug designation. Management expects R&D to remain its primary expense for the foreseeable future.
- Management believed available cash and commitments would support planned development activities for at least 12 months from approval of the September 30 statements, while cautioning that assumptions could change and additional financing might be needed. No specific earnings or revenue guidance was provided.
- Fiocruz purchases of alfataliglicerase have been below agreed milestones, giving Protalix a termination right under the Brazil agreement. Protalix continued supply while discussing potential compliance measures. The filing reported $2.6 million of Brazilian sales for the first nine months of 2018.
- Risks include clinical-trial and regulatory uncertainty, financing needs and convertible-note obligations, dependence on partners and suppliers, Pfizer supply commitments, and Fiocruz’s purchase obligations. The company reported no material change to previously disclosed risk factors, no material legal proceedings, and no off-balance-sheet arrangements.
Investor verification points
- Confirm the timing and conditions for recognizing Chiesi upfront and development payments, and distinguish deferred cash receipts from recognized revenue.
- Track PRX-102 trial progress, costs, regulatory milestones, and whether contingent Chiesi payments are earned.
- Assess cash runway against clinical spending, and review the principal, terms, conversion exposure, and fair-value estimate of the 2021 notes.
- Monitor Fiocruz purchase performance and the status of Protalix’s Brazil agreement and sales.
- Reconcile the large year-over-year change in financial expense with the 2017 embedded-derivative fair-value charge and ongoing note interest costs.