Item 1. Financial Statements
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
(Unaudited)
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,327
|
|
|
$
|
51,163
|
|
Accounts receivable – Trade
|
|
|
5,248
|
|
|
|
1,721
|
|
Other assets
|
|
|
2,499
|
|
|
|
1,934
|
|
Inventories
|
|
|
6,978
|
|
|
|
7,833
|
|
Total current assets
|
|
$
|
43,052
|
|
|
$
|
62,651
|
|
|
|
|
|
|
|
|
|
|
FUNDS IN RESPECT OF EMPLOYEE RIGHTS UPON RETIREMENT
|
|
|
1,729
|
|
|
|
1,887
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
6,940
|
|
|
|
7,676
|
|
Total assets
|
|
$
|
51,721
|
|
|
$
|
72,214
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES NET OF CAPITAL DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accruals:
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
6,001
|
|
|
$
|
7,521
|
|
Other
|
|
|
9,071
|
|
|
|
9,310
|
|
Convertible notes
|
|
|
|
|
|
|
5,921
|
|
Total current liabilities
|
|
$
|
15,072
|
|
|
$
|
22,752
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
46,742
|
|
|
|
46,267
|
|
Deferred revenues
|
|
|
31,885
|
|
|
|
26,851
|
|
Liability for employee rights upon retirement
|
|
|
2,335
|
|
|
|
2,586
|
|
Other long term liabilities
|
|
|
5,258
|
|
|
|
5,051
|
|
Total long term liabilities
|
|
$
|
86,220
|
|
|
$
|
80,755
|
|
Total liabilities
|
|
$
|
101,292
|
|
|
$
|
103,507
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL DEFICIENCY
|
|
|
(49,571
|
)
|
|
|
(31,293
|
)
|
Total liabilities net of capital deficiency
|
|
$
|
51,721
|
|
|
$
|
72,214
|
|
The accompanying notes are an integral part
of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share and per share data)
(Unaudited)
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
REVENUES
|
|
$
|
6,559
|
|
|
$
|
9,247
|
|
|
$
|
2,006
|
|
|
$
|
6,358
|
|
COST OF REVENUES
|
|
|
(5,107
|
)
|
|
|
(7,611
|
)
|
|
|
(2,183
|
)
|
|
|
(5,523
|
)
|
GROSS PROFIT (LOSS)
|
|
|
1,452
|
|
|
|
1,636
|
|
|
|
(177
|
)
|
|
|
835
|
|
RESEARCH AND DEVELOPMENT EXPENSES (1)
|
|
|
(14,762
|
)
|
|
|
(15,271
|
)
|
|
|
(7,476
|
)
|
|
|
(9,304
|
)
|
Less – grants
|
|
|
1,078
|
|
|
|
1,816
|
|
|
|
235
|
|
|
|
478
|
|
RESEARCH AND DEVELOPMENT EXPENSES, NET
|
|
|
(13,684
|
)
|
|
|
(13,455
|
)
|
|
|
(7,241
|
)
|
|
|
(8,826
|
)
|
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (2)
|
|
|
(4,656
|
)
|
|
|
(5,351
|
)
|
|
|
(2,158
|
)
|
|
|
(2,814
|
)
|
OPERATING LOSS
|
|
|
(16,888
|
)
|
|
|
(17,170
|
)
|
|
|
(9,576
|
)
|
|
|
(10,805
|
)
|
FINANCIAL EXPENSES
|
|
|
(4,013
|
)
|
|
|
(5,132
|
)
|
|
|
(1,793
|
)
|
|
|
(3,045
|
)
|
FINANCIAL INCOME
|
|
|
207
|
|
|
|
1,665
|
|
|
|
75
|
|
|
|
40
|
|
(LOSS) INCOME FROM CHANGE IN FAIR VALUE OF CONVERTIBLE NOTES EMBEDDED DERIVATIVE
|
|
|
|
|
|
|
(38,061
|
)
|
|
|
|
|
|
|
14,260
|
|
FINANCIAL (EXPENSES) INCOME, NET
|
|
|
(3,806
|
)
|
|
|
(41,528
|
)
|
|
|
(1,718
|
)
|
|
|
11,255
|
|
NET (LOSS) INCOME FOR THE PERIOD
|
|
$
|
(20,694
|
)
|
|
$
|
(58,698
|
)
|
|
$
|
(11,294
|
)
|
|
$
|
450
|
|
NET (LOSS) EARNINGS PER SHARE OF COMMON STOCK:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share of common stock
|
|
$
|
(0.14
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.00
|
|
DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock
|
|
$
|
(0.14
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING (LOSS) EARNINGS
PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
145,985,445
|
|
|
|
126,000,782
|
|
|
|
146,644,450
|
|
|
|
127,523,706
|
|
DILUTED
|
|
|
145,985,445
|
|
|
|
126,000,782
|
|
|
|
146,644,450
|
|
|
|
192,598,389
|
|
(1) Includes share-based compensation
|
|
$
|
40
|
|
|
$
|
120
|
|
|
$
|
(2
|
)
|
|
$
|
55
|
|
(2) Includes share-based compensation
|
|
$
|
34
|
|
|
$
|
96
|
|
|
$
|
14
|
|
|
$
|
43
|
|
The accompanying notes
are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN
CAPITAL DEFICIENCY
(U.S. dollars in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid–In
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock
(1)
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
Number
of
shares
|
|
|
Amount
|
|
Balance at
December 31, 2016
|
|
|
124,134,085
|
|
|
$
|
124
|
|
|
$
|
202,575
|
|
|
$
|
(212,656
|
)
|
|
$
|
(9,957
|
)
|
Changes during the six-month
period ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
related to stock options
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
216
|
|
Reclassification of embedded
derivative
|
|
|
|
|
|
|
|
|
|
|
43,634
|
|
|
|
|
|
|
|
43,634
|
|
Convertible notes conversions
|
|
|
4,948,821
|
|
|
|
5
|
|
|
|
4,132
|
|
|
|
|
|
|
|
4,137
|
|
Net
loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,698
|
)
|
|
|
(58,698
|
)
|
Balance
at June 30, 2017
|
|
|
129,082,906
|
|
|
|
129
|
|
|
|
250,557
|
|
|
|
(271,354
|
)
|
|
|
(20,668
|
)
|
Balance at December 31,
2017
|
|
|
143,728,797
|
|
|
$
|
144
|
|
|
$
|
266,495
|
|
|
$
|
(297,932
|
)
|
|
$
|
(31,293
|
)
|
Changes during the six-month
period ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
related to stock options
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
58
|
|
Share-based
compensation related to restricted stock award
|
|
|
29,898
|
|
|
|
*
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Convertible
notes conversions
|
|
|
1,811,260
|
|
|
|
2
|
|
|
|
1,190
|
|
|
|
|
|
|
|
1,192
|
|
Convertible
notes exchange
|
|
|
2,613,636
|
|
|
|
2
|
|
|
|
1,148
|
|
|
|
|
|
|
|
1,150
|
|
Net
loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,694
|
)
|
|
|
(20,694
|
)
|
Balance
at June 30, 2018
|
|
|
148,183,591
|
|
|
$
|
148
|
|
|
$
|
268,907
|
|
|
$
|
(318,626
|
)
|
|
$
|
(49,571
|
)
|
|
*
|
Represents an amount less than $1.
|
|
(1)
|
Common Stock, $0.001 par value; Authorized – as of
June 30, 2018 and 2017 - 250,000,000.
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(U.S. dollars in thousands)
(Unaudited)
|
|
Six months ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,694
|
)
|
|
$
|
(58,698
|
)
|
Adjustments required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
74
|
|
|
|
216
|
|
Depreciation
|
|
|
846
|
|
|
|
986
|
|
Financial expenses, net (mainly exchange differences)
|
|
|
94
|
|
|
|
56
|
|
Changes in accrued liability for employee rights upon retirement
|
|
|
(121
|
)
|
|
|
89
|
|
Gain on amounts funded in respect of employee rights upon retirement
|
|
|
(43
|
)
|
|
|
(19
|
)
|
Net loss (income) in connection with conversions of convertible notes
|
|
|
186
|
|
|
|
(739
|
)
|
Change in fair value of convertible notes embedded derivative
|
|
|
|
|
|
|
38,061
|
|
Amortization of debt issuance costs and debt discount
|
|
|
1,257
|
|
|
|
1,141
|
|
Issuance of shares for interest payment in connection with conversions of convertible notes
|
|
|
205
|
|
|
|
634
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in deferred revenues
|
|
|
5,034
|
|
|
|
1,088
|
|
Increase in accounts receivable and other assets
|
|
|
(3,989
|
)
|
|
|
(3,538
|
)
|
Decrease (increase) in inventories
|
|
|
855
|
|
|
|
(1,814
|
)
|
Increase (decrease) in accounts payable and accruals
|
|
|
(1,288
|
)
|
|
|
5,378
|
|
Increase in other long term liabilities
|
|
|
207
|
|
|
|
|
|
Net cash used in continuing operations
|
|
|
(17,377
|
)
|
|
|
(17,159
|
)
|
Net cash provided by discontinued operations
|
|
|
|
|
|
|
114
|
|
Net cash used in operating activities
|
|
$
|
(17,377
|
)
|
|
$
|
(17,045
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
(394
|
)
|
|
$
|
(543
|
)
|
Increase in restricted deposit
|
|
|
(162
|
)
|
|
|
(343
|
)
|
Amounts funded in respect of employee rights upon retirement, net
|
|
|
109
|
|
|
|
(83
|
)
|
Net cash used in investing activities
|
|
$
|
(447
|
)
|
|
$
|
(969
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net payment for convertible notes
|
|
|
(4,752
|
)
|
|
|
(10,961
|
)
|
Net cash used in financing activities
|
|
|
(4,752
|
)
|
|
|
(10,961
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
$
|
(260
|
)
|
|
$
|
227
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(22,836
|
)
|
|
|
(28,748
|
)
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
51,163
|
|
|
|
63,281
|
|
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
28,327
|
|
|
$
|
34,533
|
|
The accompanying notes
are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(U.S. dollars in thousands)
(Unaudited)
(Continued) - 2
|
|
Six Months Ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
242
|
|
|
$
|
493
|
|
Convertible notes conversions
|
|
$
|
2,137
|
|
|
$
|
3,503
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE ON CASH FLOWS
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,408
|
|
|
$
|
2,330
|
|
The accompanying notes
are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 – SIGNIFICANT ACCOUNTING
POLICIES
Protalix BioTherapeutics, Inc. (collectively
with its subsidiaries, the “Company”), and its wholly-owned subsidiaries, Protalix Ltd. and Protalix B.V. (the “Subsidiaries”),
are biopharmaceutical companies focused on the development and commercialization of recombinant therapeutic proteins based on the
Company’s proprietary ProCellEx
®
protein expression system (“ProCellEx”). To date, the Company
has successfully developed taliglucerase alfa (marketed under the name alfataliglicerase in Brazil and certain other Latin American
countries and Elelyso
®
in the rest of the territories) for the treatment of Gaucher disease that has been approved
for marketing in the United States, Brazil, Israel and other markets. The Company has a number of product candidates in varying
stages of the clinical development process. The Company’s current strategy is to develop proprietary recombinant proteins
that are therapeutically superior to existing recombinant proteins currently marketed for the same indications.
The Company’s product pipeline
currently includes, among other candidates:
(1) pegunigalsidase alfa, or PRX-102,
a therapeutic protein candidate for the treatment of Fabry disease, a rare, genetic lysosomal disorder;
(2) alidornase alfa, or PRX-110, a
proprietary plant cell recombinant human Deoxyribonuclease 1, or DNase, under development for the treatment of Cystic Fibrosis,
to be administered by inhalation; and
(3) OPRX-106, the Company’s oral
antiTNF product candidate which is being developed as an orally-delivered anti-inflammatory treatment using plant cells as a natural
capsule for the expressed protein.
Obtaining marketing approval with respect
to any product candidate in any country is directly dependent on the Company’s ability to implement the necessary regulatory
steps required to obtain such approvals. The Company cannot reasonably predict the outcome of these activities.
Since its approval by the FDA, taliglucerase
alfa has been marketed by Pfizer Inc. (“Pfizer”), as provided in the exclusive license and supply agreement by and
between Protalix Ltd. and Pfizer, which is referred to herein as the Pfizer Agreement. In October 2015, the Company entered into
an Amended and Restated Exclusive License and Supply Agreement (the “Amended Pfizer Agreement”) which amends and restates
the Pfizer Agreement in its entirety. Pursuant to the Amended Pfizer Agreement, the Company sold to Pfizer its share in the collaboration
created under the Pfizer Agreement for the commercialization of Elelyso in exchange for a cash payment equal to $36.0 million.
As part of the sale, the Company agreed to transfer its rights to Elelyso in Israel to Pfizer while gaining full rights to it in
Brazil. Under the Amended Pfizer Agreement, Pfizer is entitled to all of the revenues, and is responsible for 100% of expenses
globally for Elelyso, excluding Brazil where the Company is responsible for all expenses and retains all revenues.
On June 18, 2013, the Company entered
into a Supply and Technology Transfer Agreement (the “Brazil Agreement”) with Fundação Oswaldo Cruz (“Fiocruz”),
an arm of the Brazilian Ministry of Health (the “Brazilian MoH”), for taliglucerase alfa. Fiocruz’s purchases
of alfataliglicerase to date have been significantly below certain agreed upon purchase milestones and, accordingly, the Company
has the right to terminate the Brazil Agreement. Notwithstanding, the Company is, at this time, continuing to supply alfataliglicerase
to Fiocruz under the Brazil Agreement, and patients continue to be treated with alfataliglicerase in Brazil. Approximately 10%
of adult Gaucher patients in Brazil are currently treated with alfataliglicerase. The Company is discussing with Fiocruz potential
actions that Fiocruz may take to comply with its purchase obligations and, based on such discussions, the Company will determine
what it believes to be the course of action that is in the best interest of the Company.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES
(continued)
:
In 2017, the Company received a purchase
order from the Brazilian MoH for the purchase of alfataliglicerase for the treatment of Gaucher patients in Brazil for consideration
of approximately $24.3 million. Shipments started in June 2017. The Company recorded revenues of $7.1 million for sales
of alfataliglicerase to Fiocruz in 2017, and $2.6 million during the six months ended June 30, 2018.
On October 19, 2017, Protalix Ltd.
and Chiesi Farmaceutici S.p.A. (“Chiesi”) entered into an Ex-US license (the “Chiesi Agreement”) pursuant
to which Chiesi was granted an exclusive license for all markets outside of the United States to commercialize pegunigalsidase
alfa. Under the terms and conditions of the Chiesi Agreement, Protalix Ltd. retained the right to commercialize pegunigalsidase
in the United States.
Under the Chiesi Agreement, Chiesi
made an upfront payment to Protalix Ltd. of $25.0 million in connection with the execution of the agreement and Protalix Ltd.
is entitled to additional payments of up to $25.0 million in development costs, capped at $10.0 million per year. Protalix
Ltd. is also eligible to receive additional payments of up to $320.0 million, in the aggregate, in regulatory and commercial
milestone payments.
Under the terms of the Chiesi Agreement,
Protalix Ltd. will manufacture all of the PRX-102 needed for all purposes under the agreement, subject to certain exceptions, and
Chiesi will purchase pegunigalsidase alfa from Protalix, subject to certain terms and conditions. Chiesi will make tiered payments
of 15% to 35% of its net sales, depending on the amount of annual sales, as consideration for the supply of pegunigalsidase alfa.
Based on its current cash resources
and commitments, the Company believes it will be able to maintain its current planned development activities and the corresponding
level of expenditures for at least 12 months from the date of approval of the June 30, 2018 financial statements, although
no assurance can be given that it will not need additional funds prior to such time. If there are unexpected increases in general
and administrative expenses or research and development expenses, the Company may need to seek additional financing.
The accompanying unaudited condensed consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual
financial statements. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for a fair
statement of the results for the interim periods presented have been included. Operating results for the interim period are not
necessarily indicative of the results that may be expected for the full year.
These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements in the Annual Report on Form 10-K for the year
ended December 31, 2017, filed by the Company with the Commission. The comparative balance sheet at December 31, 2017 has been
derived from the audited financial statements at that date.
Basic (loss) earnings per share (“LPS”) are
computed by dividing net loss (income) by the weighted average number of shares of the Company’s common stock, par value
$0.001 per share (the “Common Stock”), outstanding for each period.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
Diluted loss per share is calculated by dividing the
net income by the weighted-average number of shares of Common Stock outstanding during each period increased to include the number
of additional shares of Common Stock that would have been outstanding if the potentially dilutive shares had been issued. Potentially
dilutive shares include additional shares of Common Stock issuable upon the assumed conversion of the convertible notes (issued
in September 2013 and December 2016).
The loss and weighted average number of shares outstanding
used to calculate (loss) earnings per share were as follows:
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Net loss (income) for the period
|
|
$
|
(20,694
|
)
|
|
$
|
(58,698
|
)
|
|
$
|
(11,294
|
)
|
|
$
|
450
|
|
Financial income, net of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
(11,847
|
)
|
Loss used for the computation of diluted loss per share
|
|
$
|
(20,694
|
)
|
|
$
|
(58,698
|
)
|
|
$
|
(11,294
|
)
|
|
$
|
(11,397
|
)
|
Weighted average shares of common stock outstanding for basic calculation
|
|
|
145,985,445
|
|
|
|
126,000,782
|
|
|
|
146,644,450
|
|
|
|
127,523,706
|
|
Weighted average dilutive effect of shares issuable upon conversion of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,066,683
|
|
Weighted average dilutive effect of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,000
|
|
Weighted average shares of common stock outstanding for diluted calculation
|
|
|
145,985,445
|
|
|
|
126,000,782
|
|
|
|
146,644,450
|
|
|
|
192,598,389
|
|
Diluted LPS is calculated in continuing operations. The
calculation of diluted LPS does not include 74,087,411 and 73,306,448 shares of Common Stock underlying outstanding options and
restricted shares of Common Stock and shares issuable upon conversion of the convertible notes (issued in September 2013 and December
2016) for the six months ended June 30, 2017 and 2018, respectively, and 72,836,697 shares of Common Stock for the three months
ended June 30, 2018 because the effect would be anti-dilutive. The calculation of diluted LPS does not include 5,059,186 shares
of Common Stock underlying outstanding options for the three months ended June 30, 2017, because the effect would be anti-dilutive.
|
1.
|
Revenues from supply agreements
|
The Company recognizes revenues from supply agreements and
from selling products when control is transferred to the customer and collectability is probable.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
|
2.
|
Revenues from Chiesi Agreement
|
As Chiesi is obligated to acquire pegunigalsidase
alfa from the Company and the development services are not considered distinct, development and manufacturing of a product to
be commercialized by Chiesi is viewed as a single performance obligation. Since there is only one performance obligation, all
payments received by Chiesi prior to the satisfaction of the Company’s obligation will be deferred. Therefore, the
$25.0 million upfront payment and future research and development reimbursement payments (up to $25.0 million) and
any potential additional development milestone payments are contract liabilities and will be deferred until the commencement
of commercial manufacturing.
|
e.
|
Recently adopted standards
|
In May 2014, the
Financial
Accounting Standards Board (“FASB”)
issued guidance on revenues from contracts with customers that will supersede
most current revenue recognition guidance, including industry-specific guidance. The underlying principle is to recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity
expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to
determine when and how revenue is recognized. Other major provisions require capitalization of certain contracts costs, consideration
of the time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies
are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount timing and
uncertainty of revenues and cash flows arising from an entity’s contracts with customers. The guidance is effective for the
interim and annual periods beginning on or after December 15, 2017. On January 1, 2018, the Company adopted the new accounting
standard, ASC 606, Revenue from Contracts with Customers, and all the related amendments, using the modified retrospective method.
The implementation of this Accounting Standards Update (ASU) did not have a material impact on the Company’s consolidated
financial statements.
In January 2016, the FASB issued ASU, No. 2016-01, Financial
Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance affects the accounting
for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial
instruments. The guidance is effective for annual reporting periods beginning after December 15, 2017. The implementation
of this ASU did not have a material impact on the Company’s consolidated financial statements.
NOTE 2 – INVENTORIES
Inventory at June 30, 2018 and December 31,
2017 consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(
U.S. dollars in thousands)
|
|
Raw materials
|
|
$
|
3,280
|
|
|
$
|
3,838
|
|
Work in progress
|
|
|
365
|
|
|
|
485
|
|
Finished goods
|
|
|
3,333
|
|
|
|
3,510
|
|
Total inventory
|
|
$
|
6,978
|
|
|
$
|
7,833
|
|
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 3 – FAIR VALUE MEASUREMENT
The Company measures fair value and discloses fair value
measurements for financial assets and liabilities. Fair value is based on the price that would be received from the sale of an
asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
The accounting standard establishes a fair value hierarchy
that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets
that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level
1 inputs.
Level 2: Observable prices that are based on inputs
not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or
no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers
counterparty credit risk in its assessment of fair value.
The fair value of the financial instruments included
in the working capital of the Company is usually identical or close to their carrying value.
The fair value of the convertible notes derivative is
based on Level 3 measurement.
The fair value of the remaining $58.1 million
in aggregate principal amount of the Company’s outstanding 7.50% secured convertible promissory notes due 2021 (the “2016
Notes”) is approximately $61.4 million, based on a Level 3 measurement.
The
Company prepared a valuation of the fair value of the
Company’s 2016 Notes (a Level 3 valuation) as of June
30,
2018. The values of these notes were estimated by implementing the binomial model. The liability component was valued based
on the Income Approach. The following parameters were used:
|
|
2016 Notes
|
|
Stock price (USD)
|
|
|
0.43
|
|
Expected term (years)
|
|
|
3.38
|
|
Risk free rate
|
|
|
2.63%
|
|
Volatility
|
|
|
71.89%
|
|
Yield
|
|
|
13.17%
|
|
NOTE 4 – CONVERTIBLE NOTES
All of our outstanding convertible notes are accounted
for using the guidance set forth in the FASB Accounting Standards Codification (ASC) 815 which requires that the Company determine
whether the embedded conversion option must be separated and accounted for separately. ASC 470-20, regarding debt
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 4 – CONVERTIBLE NOTES
(continued)
:
with conversion and other options, requires the issuer
of a convertible debt instrument that may be settled in cash upon conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing
rate.
The
2016 Notes were accounted for partially as liability and equity components of the instrument and partially as a debt host contract
with an embedded derivative resulting from the conversion feature. During the year ended December 31,
2017, the embedded derivative was reclassified to additional paid in capital.
Issuance costs regarding the issuance of the 2016 Notes are
amortized using the effective interest rate.
During
the six months ended June 30, 2018, note holders converted
$1.0 million
aggregate
principal amount of the 2016 Notes into a total of 1,338,707 shares of Common Stock,
and cash payments of
approximately $11,668, in the aggregate. In addition, in June 2018, the Company exchanged $3.42 million aggregate
principal amount of the Company’s outstanding 4.50% convertible promissory notes due 2018 (the
“2013 Notes”) for 2,613,636 shares of Common Stock and approximately $2.2 million in cash and delivered the
necessary funds under the indenture governing the 2013 Notes, which was $2.5 million, to effectively discharge the remaining
outstanding 2013 Notes.
As of June 30, 2018, a total of
$58.1 million aggregate principal amount of the
2016 Notes
were outstanding. In addition, as of June 30, 2018, all of the 2013 Notes outstanding have been effectively discharged.
NOTE 5 – REVENUES
The following table summarizes the Company’s
disaggregation of revenues:
|
|
Six Months Ended June 30,
|
|
(U.S. dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
Pfizer
|
|
$
|
3,986
|
|
|
$
|
5,671
|
|
Brazil
|
|
$
|
2,573
|
|
|
$
|
3,576
|
|
|
|
$
|
6,559
|
|
|
$
|
9,247
|
|
NOTE 6 – SUBSEQUENT EVENTS
On July 23, 2018, Protalix entered into an Exclusive
License and Supply Agreement with Chiesi, or the Chiesi U.S. Agreement, with respect to the development and commercialization of
PRX-102 in the United States. Under the terms of the Chiesi U.S. Agreement, Protalix granted to Chiesi exclusive licensing
rights for the commercialization of PRX-102 in the United States. In October 2017, Protalix granted to Chiesi exclusive licensing
rights for the commercialization of PRX-102 for all markets outside of the United States. Protalix is entitled to an upfront,
non-refundable, non-creditable payment of $25.0 million from Chiesi and additional payments of up to a maximum of $20.0 million
to cover development costs for PRX-102, subject to a maximum of $7.5 million per year. Protalix is also eligible to receive
an additional up to a maximum of $760
.0
million
,
in the aggregate, in regulatory and commercial milestone payments. Chiesi will also make tiered payments of 15% to 40% of its net
sales to Protalix, depending on the amount of annual sales, subject to certain terms and conditions, as consideration for
product supply.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our
financial condition and results of operations together with our financial statements and the consolidated financial statements
and the related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December
31,
2017. Some of the information contained in this discussion and analysis, particularly with respect to our plans and strategy for
our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read “Risk
Factors” in our Annual Report on Form 10-K for the year ended December
31, 2017 for a discussion of important
factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements
contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company focused on the development and
commercialization of recombinant therapeutic proteins based on our proprietary ProCellEx
®
protein expression system.
We developed our first commercial drug product, Elelyso
®
, using our ProCellEx system and we are now focused on utilizing
the system to develop a pipeline of proprietary, clinically superior versions of recombinant therapeutic proteins that primarily
target large, established pharmaceutical markets and that in most cases rely upon known biological mechanisms of action. With our
experience to date, we believe ProCellEx will enable us to develop additional proprietary recombinant proteins that are therapeutically
superior to existing recombinant proteins currently marketed for the same indications including applying the unique properties
of our ProCellEx system for the oral delivery of therapeutic proteins.
On October
19,
2017, Protalix Ltd., our wholly-owned subsidiary, and Chiesi entered into the Chiesi Agreement pursuant to which Chiesi was granted
an exclusive license for all markets outside of the United States to commercialize pegunigalsidase alfa.
Pegunigalsidase
alfa is our chemically modified version of the recombinant protein alpha-Galactosidase-A protein that is currently being evaluated
in phase III clinical trials for the treatment of Fabry disease
. Under
the terms and conditions of the Chiesi Agreement, Protalix Ltd. retained the right to commercialize pegunigalsidase alfa in the
United States. Under the Chiesi Agreement, Chiesi made an upfront payment to Protalix Ltd. of $25.0
million
in connection with the execution of the agreement and Protalix Ltd. is entitled to additional payments of up to $25.0
million
in development costs, capped at $10.0
million per year. Protalix
Ltd. is also eligible to receive an additional up to $320.0
million,
in the aggregate, in regulatory and commercial milestone payments. Protalix Ltd. agreed to manufacture all of the PRX-102 needed
for all purposes under the agreement, subject to certain exceptions, and Chiesi will purchase pegunigalsidase alfa from Protalix,
subject to certain terms and conditions. Chiesi is required to make tiered payments of 15% to 35% of its net sales, depending on
the amount of annual sales, as consideration for the supply of pegunigalsidase alfa.
On July
23, 2018, Protalix Ltd. entered into an Exclusive License and Supply Agreement with Chiesi, or the Chiesi U.S. Agreement, with
respect to the development and commercialization of pegunigalsidase alfa in the United States. Under the terms of the Chiesi U.S.
Agreement, Protalix Ltd. granted to Chiesi exclusive licensing rights for the commercialization of PRX-102 in the United States.
Protalix Ltd. is entitled to an upfront, non-refundable, non-creditable payment of $25.0 million from Chiesi and additional payments
of up to a maximum of $20.0 million to cover development costs for PRX-102, subject to a maximum of $7.5 million per year. Protalix
Ltd. is also eligible to receive an additional up to a maximum of $760.0
million,
in the aggregate, in regulatory and commercial milestone payments. Chiesi will also make tiered payments of 15% to 40% of its net
sales to Protalix Ltd., depending on the amount of annual sales, subject to certain terms and conditions, as consideration for
product supply.
In December 2017, the European Commission granted Orphan Drug Designation
for pegunigalsidase alfa for the treatment of Fabry disease. The designation was granted after the European Medicine Agency’s
Committee for Orphan Medicinal Products, or the COMP, issued a positive opinion supporting the designation noting that we had established
that there was medically plausible evidence that pegunigalsidase alfa will provide a significant benefit over existing approved
therapies in the European Union for the treatment of Fabry disease. The COMP cited clinical and non-clinical justifications we
provided to establish the significant benefit of pegunigalsidase alfa, noting that the COMP considered the justifications to constitute
a clinically relevant advantage. Orphan Drug Designation for pegunigalsidase alfa qualifies Protalix Ltd. for access to a centralized
marketing authorization procedure, including applications for inspections and for protocol assistance. If the orphan drug designation
is maintained at the time pegunigalsidase alfa is approved for marketing in the European Union, if at all, we expect that PRX-102
will benefit from 10 years of market exclusivity within the European Union. The market exclusivity will not have any effect on
Fabry disease treatments already approved at that time.
In January 2018, the FDA granted Fast Track designation to PRX-102.
Fast Track designation is a process designed to facilitate the development and expedite the review of drugs and vaccines for serious
conditions that fill an unmet medical need.
On May 1, 2012, the FDA approved for sale our first commercial product,
taliglucerase alfa for injection, an ERT for the long-term treatment of adult patients with a confirmed diagnosis of type 1 Gaucher
disease. Subsequently, taliglucerase alfa was approved for marketing by the regulatory authorities of other countries. Taliglucerase
alfa is marketed under the name alfataliglicerase in Brazil and certain other Latin American countries, and under the name Elelyso
in other territories.
Since its
approval by the FDA, taliglucerase alfa has been marketed by Pfizer, as provided in the Pfizer Agreement. In
October 2015,
we entered into the Amended Pfizer Agreement which amends and restates the Pfizer Agreement in its entirety. Pursuant to the Amended
Pfizer Agreement, we sold to Pfizer our share in the collaboration created under the initial Pfizer Agreement for the commercialization
of Elelyso in exchange for a cash payment equal to $36.0 million. As part of the sale, we agreed to transfer our rights to
Elelyso in Israel to Pfizer, while gaining full rights to Elelyso in Brazil. We will continue to manufacture drug substance for
Pfizer, subject to certain terms and conditions. Under the Amended Pfizer Agreement, Pfizer is responsible for 100% of expenses,
and entitled to all revenues globally for Elelyso, excluding Brazil, where we are responsible for all expenses and retain all revenues.
For the first 10-year period after the execution of the Amended
Pfizer Agreement, we have agreed to sell drug substance to Pfizer for the production of Elelyso, and Pfizer maintains the right
to extend the supply period for up to two additional 30-month periods subject to certain terms and conditions. Any failure to comply
with our supply commitments may subject us to substantial financial penalties, which will have a material adverse effect on our
business, results of operations and financial condition. The Amended Pfizer Agreement also includes customary provisions regarding
cooperation for regulatory matters, patent enforcement, termination, indemnification and insurance requirements.
On June
18,
2013, we entered into the Brazil Agreement with
Fiocruz, an arm of the Brazilian MoH,
for
taliglucerase alfa.
In 2017, we received a purchase order from the Brazilian MoH for the purchase of approximately $24.3 million
of alfataliglicerase for the treatment of Gaucher patients in Brazil. The purchase order consists of a number of shipments in increasing
volumes. Shipments started in June 2017. Fiocruz’s purchases of
alfataliglicerase
to date have been significantly below certain agreed upon purchase milestones and, accordingly, we have the right to terminate
the Brazil Agreement. Notwithstanding, we are, at this time, continuing to supply
alfataliglicerase
to Fiocruz under the Brazil Agreement, and patients continue to be treated with
alfataliglicerase
in Brazil. We are discussing with Fiocruz potential actions that Fiocruz may take to comply with its purchase obligations and,
based on such discussions, we will determine what we believe to be the course of action that is in our best interest.
We are developing an innovative product pipeline using our ProCellEx
protein expression system. Our product pipeline currently includes, among other candidates:
(1) pegunigalsidase alfa, or PRX-102, a therapeutic protein candidate
for the treatment of Fabry disease, a rare, genetic lysosomal disorder in humans, currently in an ongoing phase III clinical trial.
(2) alidornase alfa, or PRX-110, a proprietary plant cell recombinant
human Deoxyribonuclease 1 under development for the treatment of Cystic Fibrosis, or CF, to be administered by inhalation. We recently
completed a phase IIa efficacy and safety study of alidornase alfa for the treatment of CF.
(3) OPRX-106,
our oral antiTNF product candidate
which is being developed as
an orally-delivered anti-inflammatory treatment using plant cells as a natural capsule for the expressed protein. We released
final data generated in our phase II clinical trial of OPRX-106 for the treatment of ulcerative colitis in March 2018
.
Additional data was released in June 2018.
We have licensed the rights to commercialize taliglucerase
alfa worldwide (other than Brazil) to Pfizer, and the rights to commercialize pegunigalsidase alfa worldwide to
Chiesi. Otherwise, we hold the worldwide commercialization rights to our other proprietary development candidates.
In addition, we continuously evaluate potential strategic marketing partnerships as well as collaboration programs
with biotechnology and pharmaceutical companies and academic research institutes.
Critical Accounting Policies
Our significant accounting policies are more fully described
in Note 1 to our consolidated financial statements appearing in this Quarterly Report. There have been no material
changes to our significant accounting policies since we filed our Annual Report on Form 10-K for the year ended
December 31, 2017.
The discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we prepared in accordance with U.S. generally accepted accounting principles.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well
as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments,
including those described in greater detail below. We base our estimates on historical experience and on various other factors
that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
Convertible Notes
All of our outstanding convertible notes are accounted for using
the guidance set forth in FASB ASC 815 which requires that we determine whether the embedded conversion option must be separated
and accounted for separately. ASC 470-20, regarding debt with conversion and other options, requires the issuer of a convertible
debt instrument that may be settled in cash upon conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate.
Our
outstanding 7.50% secured convertible promissory notes due 2021, or the 2016 Notes,
were
accounted for partially as liability and equity components of the instrument and partially as a debt host contract with an embedded
derivative resulting from the conversion feature. During the year ended December
31,
2017, the embedded derivative was reclassified to additional paid in capital.
Issuance costs regarding the issuance of the 2016 Notes are amortized
using the effective interest rate.
During the six months ended June 30, 2018, note holders
converted $1.0 million aggregate principal amount of the 2016 Notes into a total of 1,338,707 shares of our common stock,
and cash payments of approximately $11,668, in the aggregate. In addition, in June 2018, we exchanged $3.42 million aggregate
principal amount of our outstanding 4.50% convertible promissory notes due 2018, or the 2013 Notes, for 2,613,636 shares of our
common stock and approximately $2.2 million in cash, and delivered the necessary funds under the indenture governing the 2013
Notes, which was $2.5 million, to effectively discharge the remaining outstanding 2013 Notes.
As of June 30, 2018, a total of $58.1 million
aggregate principal amount of the
2016 Notes
were outstanding.
In addition, as of June 30, 2018, all of the 2013 Notes outstanding have been effectively discharged.
Results of Operations
Three months ended June 30, 2018 compared to the three months
ended June 30, 2017
Revenues
We recorded revenues of $2.0 million during the three
months ended June 30, 2018, a decrease of $4.4 million from revenues of $6.4 million for the three months
ended June 30, 2017. The decrease resulted from the decrease in the amount of drug substance sold to
Pfizer and drug product sold to Brazil.
Cost of Revenues
Cost of revenues was $2.2 million for the three months ended
June 30, 2018, a decrease of $3.3 million from cost of revenues of $5.5 million for the three months ended June 30,
2017. The decrease resulted primarily from decreased sales of drug substance to Pfizer and drug product to Brazil.
Research and Development Expenses, Net
Research and development expenses were $7.5 million
for the three months ended June 30, 2018, a decrease of $1.8 million, or 20%, from $9.3 million for the three months
ended June 30, 2017.
We expect research and development expenses for
our various development programs to continue to be our primary expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
$2.2 million for the three months ended June 30, 2018, a decrease of $656,000, or 23%, from $2.8 million for the
three months ended June 30, 2017. The decrease resulted primarily from a decrease of $393,000 in sales expenses.
Financial Expenses, net
Financial expenses, net were $1.7 million for the three months
ended June 30, 2018, compared to financial income net of $11.3 million for the three months ended June 30, 2017.
During the three months ended June 30, 2017, financial income included an income of $14.3 million as a result of the
re-measurement of the fair value of the 7.50% convertible notes embedded derivative. In addition, financial expenses is composed
primarily from interest expense on convertible notes of $1.2 million for the period ended June 30, 2018.
Six months ended June 30, 2018 compared to the six months
ended June 30, 2017
Revenues
We recorded revenues of $6.6 million during the six months
ended June 30, 2018, a decrease of $2.7 million, or 29%, from revenues of $9.2 million for the six months ended
June 30, 2017. The decrease resulted primarily from a decrease in the amount of drug substance sold to Pfizer and drug product
sold to Brazil.
Cost of Revenues
Cost of revenues was $5.1 million for the six months ended
June 30, 2018, a decrease of $2.5 million, or 33%, from cost of revenues of $7.6 million for the six months ended
June 30, 2017. The decrease resulted primarily from costs related to the production of drug substance sold to Pfizer and drug
product sold to Brazil.
Research and Development Expenses, Net
Research and development expenses was $14.8 million for the
six months ended June 30, 2018, a decrease of $509,000, or 3%, from $15.3 million for the six months ended June 30,
2017.
We expect research and development expenses for
our various development programs to continue to be our primary expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
$4.7 million for the six months ended June 30, 2018, a decrease of $695,000, or 13%, from $5.4 million for the six
months ended June 30, 2017. The decrease resulted primarily from a decrease of $433,000 in sales expenses.
Financial Expenses, net
Financial expenses, net were $3.8 million
for the six months ended June 30, 2018, compared to financial expenses net of $41.5 million for the six months ended
June 30, 2017. During the six months ended June 30, 2017, financial expenses included a charge of $38.1 million
as a result of the re-measurement of the fair value of the 7.5% convertible notes embedded derivative. In addition, financial expenses
is composed primarily from interest expense on convertible notes.
Liquidity and Capital Resources
Sources of Liquidity
As a result of our significant research and development
expenditures and the lack of significant revenue from sales of taliglucerase alfa, we have incurred operating losses from our continuing
operations since our inception. To date, we have funded our operations primarily with proceeds equal to $31.3 million from
the sale of shares of convertible preferred and ordinary shares of Protalix Ltd., and an additional $14.1 million in connection
with the exercise of warrants issued in connection with the sale of such shares, through December 31, 2008. In addition, on October 25,
2007, we generated gross proceeds of $50.0 million in connection with an underwritten public offering of our common stock
and on each of March 23, 2011 and February 22, 2012, we generated gross proceeds of $22.0 million and $27.2 million,
respectively, in connection with underwritten public offerings of our common stock.
In addition to the foregoing, on September 18, 2013, we completed
a private placement of $69.0 million in aggregate principal amount of 4.50% convertible notes due 2018, including $9.0 million
aggregate principal amount of the of 4.50% convertible notes related to the offering’s initial purchaser’s over-allotment
option, which was exercised in full. In December 2016, we completed a private placement of $22.5 million in aggregate principal
amount of 7.50% convertible notes due 2021. Finally, on July 25, 2017, we completed a private placement of an additional $10.0 million
in aggregate principal amount of 7.50% convertible notes due 2021.
Pfizer
paid Protalix Ltd. $60.0
million as an upfront payment in
connection with the execution of the Pfizer Agreement and subsequently paid to Protalix Ltd. an additional $5.0
million
upon Protalix Ltd.’s meeting a milestone. Protalix Ltd. also received a milestone payment of $25.0
million
in
connection with the FDA’s approval of taliglucerase alfa in May 2012.
Pfizer has also paid Protalix Ltd. $8.3 million
in connection with the successful achievement of milestones under a clinical development agreement between Pfizer and Protalix
Ltd. In connection with the execution of the Amended Pfizer Agreement, we received a $36.0 million payment from Pfizer, and
Pfizer purchased 5,649,079 shares of our common stock for $10.0 million.
In the
fourth quarter of 2017, Chiesi made an upfront payment to Protalix Ltd. of $25.0
million
in connection with the execution of the Chiesi Agreement.
Cash Flows
Net cash used in operations
was $17.4 million for the six months ended June 30, 2018. The net loss for the six months ended June 30, 2018
of $20.7 million was further increased by a $4.0 million increase in accounts receivable, but was offset by
an increase of $5.0 million in deferred revenues and by a decrease in accounts payable of $1.3 million,
and $1.3 million of amortization expenses in connection with the convertible notes. Net cash used in investing
activities for the six months ended June 30, 2018 was $447,000 and consisted primarily of purchases of property and
equipment, and an increase in restricted deposit. Net cash used in financing activities was $4.8 million and included
the repayment of convertible notes.
Net cash used in operations was $17 million
for the six months ended June 30, 2017. The net loss for the six months ended June 30, 2017 of $58.7 million was
further increased by an increase of $3.5 million in accounts receivable and an increase of $1.8 million in inventories,
but was partially offset by change of $38 million in the fair value of convertible notes embedded derivative and increase
of $5.4 million in accounts payable. Net cash used in investing activities for the six months ended June 30, 2017 was
$969,000 and consisted primarily of purchases of property and equipment and an increase in restricted deposit. Net cash used
in financing activities for the six months ended June 30, 2017 was $11.0 million and consisted primarily of cash settlement
for certain conversions of our convertible notes.
Future Funding Requirements
We expect to continue to incur significant expenditures in the near
future, including significant research and development expenses related primarily to the clinical trials of pegunigalsidase alfa.
We believe that our existing cash and cash equivalents and commitments will be sufficient for at least 12 months. We have based
this estimate on assumptions that are subject to change and may prove to be wrong, and we may be required to use our available
capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development
and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating
expenditures associated with our current and anticipated clinical trials.
Our future capital requirements will depend on
many other factors, including our progress in commercializing
alfataliglicerase
in Brazil, the progress and results of our clinical trials, the duration and cost of discovery and preclinical development and
laboratory testing and clinical trials for our product candidates, conversions of our outstanding convertible notes from time to
time, the timing and outcome of regulatory review of our product candidates, the costs involved in preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims and other intellectual property rights, the number and development requirements
of other product candidates that we pursue and the costs of commercialization activities, including product marketing, sales and
distribution.
We may need to finance our future cash needs through corporate collaboration,
licensing or similar arrangements, public or private equity offerings or debt financings. We currently do not have any commitments
for future external funding, except with respect to the development-related payments and milestone payments that may become payable
under the Chiesi Agreement. We may need to raise additional funds more quickly if one or more of our assumptions prove to be incorrect
or if we choose to expand our product development efforts more rapidly than we presently anticipate. We may also decide to raise
additional funds even before we need them if the conditions for raising capital are favorable. Any sale of additional equity or
debt securities will likely result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed
obligations and could also result in covenants that would restrict our operations. Additional equity or debt financing, grants
or corporate collaboration and licensing arrangements may not be available on acceptable terms, if at all. If adequate funds are
not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our
planned commercialization efforts or obtain funds through arrangements with collaborators or others that may require us to relinquish
rights to certain product candidates that we might otherwise seek to develop or commercialize independently.
Effects of Inflation and Currency Fluctuations
Inflation generally affects us by increasing our
cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations
during the six months ended June 30, 2018 and June 30, 2017.
Currency fluctuations could affect us through
increased or decreased acquisition costs for certain goods and services. We do not believe currency fluctuations have had a material
effect on our results of operations during the six months ended June 30, 2018 and June 30, 2017.
Off-Balance Sheet Arrangements
We have no off-balance
sheet arrangements as of each of June 30, 2018 and June 30, 2017.