Item 1. Financial Statements
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
|
|
September
30,
2019
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,442
|
|
|
$
|
37,808
|
|
Accounts receivable – Trade
|
|
|
8,716
|
|
|
|
4,729
|
|
Other assets
|
|
|
2,756
|
|
|
|
1,877
|
|
Inventories
|
|
|
7,525
|
|
|
|
8,569
|
|
Total current assets
|
|
$
|
40,439
|
|
|
$
|
52,983
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
FUNDS IN RESPECT OF EMPLOYEE RIGHTS UPON RETIREMENT
|
|
$
|
1,953
|
|
|
$
|
1,758
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
5,573
|
|
|
|
6,390
|
|
OPERATING LEASE RIGHT OF USE ASSETS
|
|
|
5,764
|
|
|
|
-
|
|
Total assets
|
|
$
|
53,729
|
|
|
$
|
61,131
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES NET OF CAPITAL DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accruals:
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
7,755
|
|
|
$
|
5,211
|
|
Other
|
|
|
12,730
|
|
|
|
10,274
|
|
Operating lease liabilities
|
|
|
1,222
|
|
|
|
-
|
|
Contracts liability
|
|
|
11,612
|
|
|
|
9,868
|
|
Total current liabilities
|
|
$
|
33,319
|
|
|
$
|
25,353
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
$
|
50,163
|
|
|
$
|
47,966
|
|
Contracts liability
|
|
|
28,586
|
|
|
|
33,027
|
|
Liability for employee rights upon retirement
|
|
|
2,606
|
|
|
|
2,374
|
|
Operating lease liabilities
|
|
|
4,532
|
|
|
|
-
|
|
Other long term liabilities
|
|
|
5,372
|
|
|
|
5,292
|
|
Total long term liabilities
|
|
$
|
91,259
|
|
|
$
|
88,659
|
|
Total liabilities
|
|
$
|
124,578
|
|
|
$
|
114,012
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL DEFICIENCY
|
|
$
|
(70,849
|
)
|
|
$
|
(52,881
|
)
|
Total liabilities net of capital deficiency
|
|
$
|
53,729
|
|
|
$
|
61,131
|
|
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 per share data)
(Unaudited)
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
REVENUES FROM SELLING GOODS
|
|
$
|
12,086
|
|
|
$
|
7,222
|
|
|
$
|
5,126
|
|
|
$
|
663
|
|
REVENUES FROM LICENSE AND R&D
SERVICES
|
|
|
24,848
|
|
|
|
16,665
|
|
|
|
9,122
|
|
|
|
11,672
|
|
COST OF GOODS SOLD
|
|
|
(7,945
|
)
|
|
|
(7,024
|
)
|
|
|
(3,205
|
)
|
|
|
(1,917
|
)
|
RESEARCH AND DEVELOPMENT EXPENSES,
NET(1)
|
|
|
(35,021
|
)
|
|
|
(23,755
|
)
|
|
|
(10,000
|
)
|
|
|
(10,071
|
)
|
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (2)
|
|
|
(6,885
|
)
|
|
|
(8,744
|
)
|
|
|
(2,587
|
)
|
|
|
(4,088
|
)
|
OPERATING LOSS
|
|
|
(12,917
|
)
|
|
|
(15,636
|
)
|
|
|
(1,544
|
)
|
|
|
(3,741
|
)
|
FINANCIAL EXPENSES
|
|
|
(5,877
|
)
|
|
|
(5,824
|
)
|
|
|
(2,050
|
)
|
|
|
(1,811
|
)
|
FINANCIAL INCOME
|
|
|
227
|
|
|
|
437
|
|
|
|
34
|
|
|
|
230
|
|
FINANCIAL EXPENSES, NET
|
|
|
(5,650
|
)
|
|
|
(5,387
|
)
|
|
|
(2,016
|
)
|
|
|
(1,581
|
)
|
NET LOSS FOR THE PERIOD
|
|
$
|
(18,567
|
)
|
|
$
|
(21,023
|
)
|
|
$
|
(3,560
|
)
|
|
$
|
(5,322
|
)
|
NET
LOSS PER SHARE OF COMMON STOCK-BASIC AND DILUTED
|
|
$
|
(0.13
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
WEIGHTED
AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING LOSS PER SHARE – BASIC AND DILUTED
|
|
|
148,382,299
|
|
|
|
146,752,355
|
|
|
|
148,382,299
|
|
|
|
148,187,513
|
|
(1) Includes share-based compensation
|
|
$
|
426
|
|
|
$
|
54
|
|
|
$
|
110
|
|
|
$
|
(14
|
)
|
Includes grants
|
|
$
|
(55
|
)
|
|
$
|
(1,810
|
)
|
|
$
|
(52
|
)
|
|
$
|
(732
|
)
|
(2) Includes share-based compensation
|
|
$
|
173
|
|
|
$
|
42
|
|
|
$
|
86
|
|
|
$
|
8
|
|
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 per share
data)
(Unaudited)
|
|
Common
|
|
|
Common
|
|
|
Additional
Paid–In
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock (1)
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
Number of
Shares
|
|
|
Amount
|
|
Balance at January 1, 2018
|
|
|
143,728,797
|
|
|
$
|
144
|
|
|
$
|
266,495
|
|
|
$
|
(296,096
|
)
|
|
$
|
(29,457
|
)
|
Changes during the nine-month period ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
Share-based compensation related to restricted stock award
|
|
|
29,898
|
|
|
|
*
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Convertible notes conversions
|
|
|
1,928,907
|
|
|
|
2
|
|
|
|
1,289
|
|
|
|
|
|
|
|
1,291
|
|
Convertible notes exchange
|
|
|
2,613,636
|
|
|
|
2
|
|
|
|
1,148
|
|
|
|
|
|
|
|
1,150
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,023
|
)
|
|
|
(21,023
|
)
|
Balance at September 30, 2018
|
|
|
148,301,238
|
|
|
$
|
148
|
|
|
$
|
269,028
|
|
|
$
|
(317,119
|
)
|
|
$
|
(47,943
|
)
|
Balance at January 1, 2019
|
|
|
148,382,299
|
|
|
$
|
148
|
|
|
$
|
269,524
|
|
|
$
|
(322,553
|
)
|
|
$
|
(52,881
|
)
|
Changes during the nine-month period ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
599
|
|
|
|
|
|
|
|
599
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,567
|
)
|
|
|
(18,567
|
)
|
Balance at September 30, 2019
|
|
|
148,382,299
|
|
|
$
|
148
|
|
|
$
|
270,123
|
|
|
$
|
(341,120
|
)
|
|
$
|
(70,849
|
)
|
Balance at June 30, 2018
|
|
|
148,183,591
|
|
|
$
|
148
|
|
|
$
|
268,907
|
|
|
$
|
(311,797
|
)
|
|
$
|
(42,742
|
)
|
Changes during the three-month period ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Convertible notes conversions
|
|
|
117,647
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
99
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,322
|
)
|
|
|
(5,322
|
)
|
Balance at September 30, 2018
|
|
|
148,301,238
|
|
|
$
|
148
|
|
|
$
|
269,028
|
|
|
$
|
(317,119
|
)
|
|
$
|
(47,943
|
)
|
Balance at June 30, 2019
|
|
|
148,382,299
|
|
|
$
|
148
|
|
|
$
|
269,927
|
|
|
$
|
(337,560
|
)
|
|
$
|
(67,485
|
)
|
Changes during the three-month period ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
196
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,560
|
)
|
|
|
(3,560
|
)
|
Balance at September 30, 2019
|
|
|
148,382,299
|
|
|
$
|
148
|
|
|
$
|
270,123
|
|
|
$
|
(341,120
|
)
|
|
$
|
(70,849
|
)
|
|
*
|
Represents an amount less than $1.
|
|
(1)
|
Common Stock, $0.001 par value; Authorized – as of September 30, 2019 and 2018 - 350,000,000 and 250,000,000, respectively.
|
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)
|
|
Nine Months Ended
|
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18,567
|
)
|
|
$
|
(21,023
|
)
|
Adjustments required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
599
|
|
|
|
96
|
|
Depreciation
|
|
|
1,205
|
|
|
|
1,257
|
|
Financial expenses (income), net (mainly exchange
differences)
|
|
|
371
|
|
|
|
(37
|
)
|
Changes in accrued liability for employee rights upon retirement
|
|
|
51
|
|
|
|
(86
|
)
|
Gain on amounts funded in respect of employee rights upon retirement
|
|
|
|
|
|
|
(45
|
)
|
Net loss in connection with conversions of convertible notes
|
|
|
|
|
|
|
204
|
|
Amortization of debt issuance costs and debt discount
|
|
|
2,197
|
|
|
|
1,916
|
|
Issuance of shares for interest payment in connection with conversions of convertible notes
|
|
|
|
|
|
|
205
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase (decrease) in contracts liability (including non-current portion)
|
|
|
(2,697
|
)
|
|
|
18,264
|
|
Increase in accounts receivable and other assets
|
|
|
(4,767
|
)
|
|
|
(3,661
|
)
|
Changes in right of use assets
|
|
|
(92
|
)
|
|
|
|
|
Decrease (increase) in inventories
|
|
|
1,044
|
|
|
|
(126
|
)
|
Increase (decrease) in accounts payable and accruals
|
|
|
4,905
|
|
|
|
(1,805
|
)
|
Increase in other long term liabilities
|
|
|
80
|
|
|
|
1,103
|
|
Net cash used in operating activities
|
|
$
|
(15,671
|
)
|
|
$
|
(3,738
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
(599
|
)
|
|
$
|
(498
|
)
|
Increase in restricted deposit
|
|
|
(254
|
)
|
|
|
(247
|
)
|
Amounts funded in respect of employee rights upon retirement, net
|
|
|
(59
|
)
|
|
|
70
|
|
Net cash used in investing activities
|
|
$
|
(912
|
)
|
|
$
|
(675
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net payment for convertible notes
|
|
|
|
|
|
$
|
(4,752
|
)
|
Net cash used in financing activities
|
|
|
|
|
|
|
(4,752
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
$
|
217
|
|
|
$
|
(130
|
)
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(16,366
|
)
|
|
|
(9,295
|
)
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
37,808
|
|
|
|
51,163
|
|
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
21,442
|
|
|
$
|
41,868
|
|
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
|
|
Nine Months Ended
|
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
14
|
|
|
$
|
237
|
|
Convertible notes conversions
|
|
|
|
|
|
$
|
2,236
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE ON CASH FLOWS
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,172
|
|
|
$
|
2,411
|
|
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 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; 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.
The Company, together with its commercialization
partner for PRX-102, Chiesi Farmaceutici S.p.A. (“Chiesi”), plans to file a biologics license application (“BLA”)
for PRX-102 for the treatment of Fabry disease by April 2020 through the Accelerated Approval pathway of the U.S. Food
and Drug Administration (“FDA”). This decision is the result of a series of meetings and correspondence between the
Company and Chiesi, on the one hand, and the FDA, on the other hand. The Company and Chiesi have initiated preparations for the
BLA submission based on clinical data generated in the one-year completed phase I/II clinical trials of PRX-102 and from the
ongoing phase III BRIDGE clinical trial, as well as safety data from all on-going studies. The BLA will also include extensive
data from the Company’s completed nonclinical program, as well as information regarding production of PRX-102.
Obtaining marketing approval with
respect to any product candidate in any country is 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.
On October 19, 2017, Protalix
Ltd. and Chiesi entered into an Exclusive License and Supply Agreement (the “Chiesi Ex-US Agreement”) pursuant to which
Chiesi was granted an exclusive license for all markets outside of the United States to commercialize pegunigalsidase alfa. On
July 23, 2018, Protalix Ltd. entered into an Exclusive License and Supply Agreement with Chiesi (the “Chiesi US Agreement”)
with respect to the commercialization of pegunigalsidase alfa in the United States.
Under each of the Chiesi Ex-US
Agreement and the Chiesi US Agreement (collectively, the “Chiesi Agreements”), Chiesi made an upfront payment to
Protalix Ltd. of $25.0 million in connection with the execution of each agreement. In addition, under the Chiesi Ex-US
Agreement, Protalix Ltd. is entitled to additional payments of up to $25.0 million in pegunigalsidase alfa development
costs, capped at $10.0 million per year, and to receive additional payments of up to $320.0 million, in the
aggregate, in regulatory and commercial milestone payments. Under the Chiesi US Agreement, Protalix Ltd. is entitled to
payments of up to a maximum of $20.0 million to cover development costs for pegunigalsidase alfa, subject to a maximum
of $7.5 million per year, and to receive an additional up to a maximum of $760.0 million, in the aggregate, in
regulatory and commercial milestone payments.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
Under the terms of both of the Chiesi
Agreements, Protalix Ltd. will manufacture all of the pegunigalsidase alfa needed under the agreements, subject to certain exceptions,
and Chiesi will purchase pegunigalsidase alfa from Protalix, subject to certain terms and conditions. Under the Chiesi Ex-US Agreement,
Chiesi is required to make tiered payments of 15% to 35% of its net sales, depending on the amount of annual sales outside of the
United States, as consideration for product supply. Under the Chiesi US Agreement, Chiesi is required to make tiered payments of
15% to 40% of its net sales, depending on the amount of annual sales in the United States, as consideration for product supply.
Since its approval by the FDA, taliglucerase
alfa has been marketed by Pfizer Inc. (“Pfizer”) in accordance with the exclusive license and supply agreement entered
into between Protalix Ltd. and Pfizer, which is referred to herein as the Pfizer Agreement. In October 2015, Protalix Ltd. and
Pfizer entered into an amended exclusive license and supply agreement, which is referred to herein as the Amended Pfizer Agreement,
pursuant to which the Company sold to Pfizer its share in the collaboration created under the Pfizer Agreement for the commercialization
of Elelyso. 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 termination right, 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.
Going Concern
Since the Company is engaged
in research and development activities, it has not derived significant income from its activities and has incurred
accumulated losses in the amount of $341.0 million through September 30, 2019 and cash outflows from operating
activities. As of September 30, 2019, the Company has outstanding $57.9 million aggregate principal amount of its
7.50% convertible promissory notes due 2021 (the “2021 Notes”) which are secured with a perfected lien on all of
the Company’s assets. Under the terms of the indenture governing the 2021 Notes, the Company is required to maintain a
minimum cash balance of at least $7.5 million. As of September 30, 2019, the Company had cash and cash equivalents of
$21.4 million. Based on its current cash resources and commitments, the Company may not be able to meet its current
planned development activities and the corresponding level of expenditures for the next 12 months from the date of approval
of the financial statements as of September 30, 2019 absent a refinancing or restructuring. These factors raise
substantial doubt as to the Company’s ability to continue as a going concern.
The Company’s management is
in the process of evaluating refinancing and restructuring alternatives, including a restructuring of its outstanding convertible
notes, and related transactions. However, there is no certainty about the Company’s ability to obtain such funding.
The financial information has been
prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities
in the normal course of business. If the Company does not complete a refinancing or restructuring, it will need to curtail or cease
operations. These financial statements do not include any adjustments that may be necessary should the Company be unable to continue
as a going concern.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
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, 2018, filed by the Company with the U.S Securities and Exchange Commission (the “Commission”).
The comparative balance sheet at December 31, 2018 has been derived from the audited financial statements at that date.
Basic and diluted
loss per share (“LPS”) are computed by dividing net loss 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.
The calculation
of diluted LPS does not include 73,310,911 and 78,269,464 shares of Common Stock underlying outstanding options and restricted
shares of Common Stock and shares issuable upon conversion of outstanding convertible notes for the nine months ended September 30,
2018 and 2019, respectively, and 73,280,977 and 78,547,287 shares of Common Stock for the three months ended September 30,
2018 and 2019, respectively, because the effect would be anti-dilutive.
|
d.
|
Recently adopted standards
|
In February 2016, the Financial Accounting Standards
Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting,
Leases (Topic 840). The new standard requires a lessee to record assets and liabilities on its balance sheet for all leases with
terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern
of expense recognition in the lessee’s income statement. The Company adopted this standard as of January 1, 2019 on
a modified retrospective basis and will not restate comparative periods. The Company elected the package of practical expedients
permitted under the transition guidance within the new standard which, among other things, allows the Company to carryforward the
historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months
or less off of its balance sheet. The Company recognized those lease payments in its statements of operations on a straight-line
basis over the lease period.
As of the adoption date, the Company recognized an
operating lease asset and liability of $5.9 million and $5.7 million, respectively, as of January 1, 2019 on its
balance sheet.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
e.
|
Newly issued accounting pronouncements
|
In June 2018, the FASB issued ASU 2018-07, “Compensation
– Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting” that expands the scope
of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should
apply the requirements of ASC Topic 718 to nonemployee awards except for certain exemptions specified in ASU 2018-07. The guidance
is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year.
Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company does not expect the
adoption of ASU 2018-07 to have a material impact on its financial statements.
NOTE 2 - INVENTORIES
|
a.
|
Inventories at September 30, 2019 and December 31, 2018 consisted of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
(U.S. dollars in thousands)
|
|
2019
|
|
|
2018
|
|
Raw materials
|
|
$
|
3,691
|
|
|
$
|
3,792
|
|
Work in progress
|
|
|
233
|
|
|
|
-
|
|
Finished goods
|
|
|
3,601
|
|
|
|
4,777
|
|
Total inventory
|
|
$
|
7,525
|
|
|
$
|
8,569
|
|
|
b.
|
During the year ended December 31, 2018 and the nine months ended September 30,
2019, the Company recorded approximately $1.1 million and $29,000, respectively, for write-down of inventory under cost of
goods sold.
|
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.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – FAIR VALUE MEASUREMENT
(continued):
The fair value of the $57.9 million aggregate
principal amount of the Company’s outstanding 2021 Notes as
of September 30, 2019 is approximately $57.7 million based on a Level 3 measurement.
The
Company prepared a valuation of the fair value of the Company’s outstanding 2021 Notes (a Level 3 valuation) as of September 30,
2019. The value of these notes was estimated by implementing the binomial model. The liability component was valued based on the
Income Approach. The following parameters were used:
|
|
2021 Notes
|
|
Stock price (USD)
|
|
0.21
|
|
Expected term
|
|
2.13
|
|
Risk free rate
|
|
1.62%
|
|
Volatility
|
|
74.99%
|
|
Yield
|
|
10.53%
|
|
NOTE 4 – OPERATING LEASES
The Company is a party to a number of lease agreements
for its facilities, the latest of which has been extended until the end of 2021. The Company has the option to extend certain of
such agreements on two additional occasions for additional five-year periods each for a total of 10 additional years. During the
extended lease period, the aggregate monthly rental payments will increase by 7.5% - 10% for each option. The Company expects to
exercise these options in future periods. As of September 30, 2019, the Company provided
bank guarantees of approximately $437,000 in the aggregate, to secure the fulfillment of its obligations under the lease agreements.
As of December 31, 2018, the future minimum lease payments required under the operating leases for such premises are approximately
$758,000, $758,000 and $621,000, for fiscal years 2019 through 2021, respectively.
The Company entered into several three-year leases
for vehicles which are regularly amended as new vehicles are leased. As of December 31, 2018, the future minimum lease payments
for the years ending December 31, 2019, 2020 and 2021 are approximately $474,000, $333,000 and $82,000, respectively.
The following table sets forth data regarding
the Company’s operating leases for the nine and three months ended September 30,
2019:
|
|
Nine Months
Ended
|
|
|
Three Months
Ended
|
|
(U.S. dollars in thousands)
|
|
September 30, 2019
|
|
Operating lease costs
|
|
$
|
907
|
|
|
$
|
314
|
|
Cash paid for amounts included in the measurement of
lease liabilities
|
|
|
999
|
|
|
|
337
|
|
Right of use assets obtained in exchange for new
operating lease liabilities
|
|
|
282
|
|
|
|
55
|
|
The following table sets forth data regarding the
Company’s operating leases as of September 30, 2019:
|
|
September 30,
2019
|
|
Weighted average remaining lease term (in
years)
|
|
|
10.6
|
|
Weighted average discount rate
|
|
|
12.55
|
%
|
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - OPERATING LEASES (continued):
The following table sets forth a maturity analysis
of the Company’s operating lease liabilities as of September 30, 2019:
(U.S. dollars in thousands)
|
|
September 30,
2019
|
|
2019 (excluding the nine months ended September 30, 2019)
|
|
$
|
300
|
|
2020
|
|
$
|
1,128
|
|
2021
|
|
$
|
949
|
|
2022
|
|
$
|
826
|
|
2023
|
|
$
|
803
|
|
After 2023
|
|
$
|
6,656
|
|
Total undiscounted cash flows
|
|
$
|
10,662
|
|
Less: imputed interest
|
|
$
|
4,908
|
|
Present value of operating lease liabilities
|
|
$
|
5,754
|
|
NOTE 5 – REVENUES
The following table summarizes the
Company’s disaggregation of revenues:
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
(U.S. dollars in thousands)
|
|
|
|
|
|
|
Pfizer
|
|
$
|
4,701
|
|
|
$
|
4,649
|
|
Brazil
|
|
$
|
7,385
|
|
|
$
|
2,573
|
|
Total revenues from selling goods
|
|
$
|
12,086
|
|
|
$
|
7,222
|
|
Revenues from license and R&D services
|
|
$
|
24,848
|
|
|
$
|
16,665
|
|
The following table sets forth data
regarding the Company’s contracts liability:
|
|
Nine Months Ended September 30,
|
|
(U.S. dollars in thousands)
|
|
2019
|
|
|
2018
|
|
Contracts liability at the beginning of the period
|
|
$
|
42,895
|
|
|
$
|
25,015
|
|
Additions during the period
|
|
|
22,151
|
|
|
|
34,929
|
|
Revenue recognized during the period
|
|
|
(24,848
|
)
|
|
|
(16,665
|
)
|
Contracts liability at the end of the period
|
|
$
|
40,198
|
|
|
$
|
43,279
|
|
The following table represents the
Company’s unsatisfied performance obligation:
|
|
September 30,
|
|
(U.S. dollars in thousands)
|
|
2019
|
|
|
2018
|
|
Unsatisfied performance obligation
|
|
$
|
50,584
|
|
|
$
|
76,969
|
|
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - STOCK TRANSACTIONS
In September 2019, the Company granted to its new
chief financial officer 10-year options to purchase, in the aggregate, 800,000 shares of Common Stock under the Company’s
2006 Employee Stock Incentive Plan, as amended (the “Plan”). The options have an exercise price equal to $0.2 per share
and vest over a four-year period in 16 equal quarterly increments. Vesting of the options is subject to acceleration in full upon
a Corporate Transaction or a Change in Control, as those terms are defined in the Plan, and are subject to certain other terms
and conditions. The Company estimated the fair value of the options on the date of grant using the Black-Scholes option-pricing
model to be approximately $97,000 based on the following weighted average assumptions: share price equal to $0.2; dividend yield
of 0% for all years; expected volatility of 66.48%; risk-free interest rates of 1.695%; and expected life of six years.
NOTE 7 – SUBSEQUENT EVENTS
On October 16, 2019, the Company received total proceeds
of approximately $2.6 million from expense reimbursements in relation to its collaboration with Chiesi and on October 18,
2019, the Company received total proceeds of approximately $3.2 million from sales of alfataliglicerase to Fiocruz.
In accordance with ASC 855 “Subsequent Events”
the Company evaluated subsequent events through the date the condensed consolidated financial statements were issued. The Company
concluded that no other subsequent events have occurred that would require recognition or disclosure in the condensed consolidated
financial statements.
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, 2018. 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 within the meanings of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, including statements regarding expectations, beliefs, intentions or strategies for the future. When used in this report, the
terms “anticipate,” “believe,” “estimate,” “expect,” “can,” “continue,”
“could,” “intend,” “may,” “plan,” “potential,” “predict,”
“project,” “should,” “will,” “would” and words or phrases of similar import, as
they relate to our company or our management, are intended to identify forward-looking statements. We intend that all forward-looking
statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are only predictions and reflect our views as of the date they are made with respect to future events and financial
performance, and we undertake no obligation to update or revise, nor do we have a policy of updating or revising, any forward-looking
statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated
events, except as may be required under applicable law. Forward-looking statements are subject to many risks and uncertainties
that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements
as a result of several factors including those set forth under “Risk Factors” in our Annual Report on Form 10-K for
the year ended December 31, 2018 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
Examples of the risks and uncertainties include, but are not
limited to, the following:
·
the risk that the FDA will not accept an application for Accelerated Approval of PRX-102 with the data generated to date
or will request additional data or other conditions of our submission, or that the FDA, the European Medicines Agency, or the EMA,
or other foreign regulatory authorities may not accept or approve a marketing application we file for any of our other product
candidates;
·
risks related to our ability to identify and complete strategic alternatives on attractive terms or at all within the time
period required to regain compliance with the continued listing standards of the NYSE American LLC, or the NYSE American, or to
otherwise maintain compliance with its continued listing standards;
·
risks related to our ability to continue as a going concern absent a strategic transaction, refinancing or restructuring;
·
the risk that the results of our clinical trials will not support the applicable claims of safety or efficacy and that our
product candidates will not have the desired effects or will have undesirable side effects or other unexpected characteristics;
·
risks relating to our ability to manage our relationship with our collaborators, distributors or partners;
·
risks relating to our ability to make required payments under our outstanding convertible notes or any other indebtedness;
·
our dependence on performance by third-party providers of services and supplies;
·
the impact of development of competing therapies and/or technologies by other companies;
·
risks related to our supply of drug product to Pfizer;
·
risks related to our expectations with respect to the commercial value of our product and product candidates;
·
potential product liability risks, and risks of securing adequate levels of related insurance coverage; and
·
the possibility of infringing a third-party’s patents or other intellectual property rights and the uncertainty of
obtaining patents covering our products and processes and successfully enforcing our intellectual property rights against third-parties.
Company Overview
·
Protalix BioTherapeutics, Inc. is a biopharmaceutical company focused on the development, production and commercialization of improved
recombinant therapeutic proteins produced by its proprietary ProCellEx® plant cell-based protein expression system.
·
We have recently undertaken many key transformational steps to strengthen the company and position our company to reemerge as a
leading Israeli pharmaceutical company including the appointment of Dror Bashan as President and Chief Executive Officer and Eyal
Rubin as Sr. Vice President and Chief Financial Officer. In addition, in August 2019, Zeev Bronfeld, a long-time member of our
Board of Directors and successful life sciences executive and investor, was elected as the new Chairman of the Board.
·
Our new management team has laid out the following key objectives for 2019-2021: improving our
capital structure, pursuing strategic partnerships and alliances, actively moving our pipeline towards commercialization
and performing a strategic and scientific review of our technology and assets with the goal of forming a research and
development plan.
·
Elelyso® (taliglucerase alfa), our first commercial product for the treatment of Gaucher disease, was the first
plant cell derived recombinant protein therapeutic approved by major regulatory authorities, including the FDA and the EMA.
·
Pegunigalsidase alfa (PRX-102), our most advanced pipeline drug candidate, is produced through our ProCellEx technology and is
under development as a treatment for Fabry disease. We are currently running three phase III clinical trials and we,
together with Chiesi, plan the submission of a BLA for PRX-102 via the FDA’s Accelerated Approval pathway by April 2020.
Recent Developments
·
On July 29, 2019, we appointed Eyal Rubin as our Senior Vice President and Chief Financial Officer, effective September 22,
2019. Mr. Rubin is an experienced healthcare finance professional with over 20 years of diverse leadership experience including
his most recent role as Executive Vice President and Chief Financial Officer of BrainStorm Cell Therapeutics, Inc., a publicly
traded biotechnology company.
·
On August 13, 2019, we announced that our Board of Directors unanimously elected Zeev Bronfeld, a current independent director,
as Chairman of the Board. Mr. Bronfeld is one of the earliest investors in our company and has deep experience in the management
of biotechnology and life science companies.
·
On August 22, 2019, we announced that we have engaged a first-tier financial advisory firm to assist us in evaluating
and pursuing strategic alternatives to maximize stakeholder value through financings and partnerships.
·
On August 30, 2019, we announced that we received a deficiency letter from NYSE American LLC stating that we are not in compliance
with the continued listing standards as set forth in Section 1003(a)(i)-(iii) of the NYSE American Company Guide as we have reported
a stockholders’ equity deficiency as of June 30, 2019 and net losses in our five most recent fiscal years ended December 31,
2018. The letter has no immediate effect on the listing of our common stock on the NYSE American. Subsequently, in accordance
with the NYSE American Company Guide, we submitted to the NYSE American a plan to regain compliance with the continued listing
standards.
·
On September 24, 2019, we and Chiesi announced the completion of enrollment in the BALANCE study, one of our three Phase III
clinical trials of PRX-102 for the treatment of Fabry disease. The head-to-head Phase III BALANCE clinical study is designed
to evaluate the safety and efficacy of PRX-102 compared to agalsidase beta (Fabrazyme®) on renal function in Fabry
patients with progressing kidney disease previously treated with agalsidase beta. To date, more than 66 patients are being treated
in our various extension studies after opting to continue treatment with PRX-102 after completion of an original study.
·
On October 17, 2019, we announced positive 12-month interim data from the first 16 out of the 22 adult patients (9 males and
7 females) enrolled in the BRIDGE Phase III open label switch-over study of PRX-102 for the treatment of Fabry disease. The
12 months on-treatment interim data demonstrate a mean improvement in kidney function, in both male and female patients, when switched
from agalsidase alfa (Replagal®) to PRX-102, and will help to support the expected FDA BLA filing under Accelerated
Approval.
ProCellEx: Our Proprietary Protein Expression
System
·
ProCellEx is our proprietary platform used to produce proteins through plant cell cultures, which allows for unique advantages
in the areas of intellectual property, manufacturing enhancements and product candidate characteristics with reduced risks for
viral contaminations from mammalian components.
·
We are the first and only company to gain FDA approval of a protein produced through plant cell-based expression. Our ProCellEx
platform uses flexible polyethylene disposable bioreactors and is optimized for plant cell cultures. As opposed to the large stainless-steel
bioreactors commonly used for recombinant protein production, our ProCellEx bioreactors are easy to use and maintain and allow
for the major advantage of rapid horizontal scale-up.
Plant Cell Production Advantages Versus
Mammalian Cell Production
Pegunigalsidase Alfa (PRX-102) for the Treatment of Fabry
Disease
PRX-102 is our proprietary, investigational,
plant cell culture expressed enzyme, and a chemically modified stabilized version of, the recombinant alpha-Galactosidase-A protein
under development for the treatment of Fabry disease. Fabry disease is an X-linked inherited disease that results from deficient
activity of the lysosomal enzyme alpha galactosidase A resulting in progressive accumulation of abnormal deposits of a fatty substance
called globotriaosylceramide (Gb3) in blood vessel walls throughout a person’s body. Fabry disease occurs in one person per
40,000. Fabry patients inherit a deficiency of the enzyme alpha-galactosidase-A, which is normally responsible for the breakdown
of Gb3. The abnormal storage of Gb3 increases with time and, accordingly, Gb3 accumulates, primarily in the blood and in the blood
vessel walls. The ultimate consequences of Gb3 deposition range from episodes of pain and impaired peripheral sensation to end-organ
failure – particularly of the kidneys, but also of the heart and the cerebrovascular system. Global sales of Fabry treatments
exceeded $1.4 billion in 2018.
We, together with Chiesi, plan the submission of a BLA for PRX 102 by April 2020 through the FDA's Accelerated Approval pathway. This decision is the result of a series of
meetings and correspondence between our company and Chiesi, on the one hand, and the FDA, on the other hand. We and Chiesi have
initiated preparations for the BLA submission based on clinical data generated in the one-year completed phase I/II
clinical trials of PRX-102 and from the ongoing phase III BRIDGE clinical trial, as well as safety data from all on-going
studies. The BLA will also include extensive data from our
completed nonclinical program, as well as information regarding production of PRX-102.
In December 2017, the European Commission granted Orphan Drug
Designation for PRX-102 for the treatment of Fabry disease. Orphan
Drug Designation for PRX-102 qualifies Chiesi 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 PRX-102 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.
Key Trials and Design
Our phase III clinical program of PRX-102 of the treatment
of Fabry disease includes three individual studies; the BALANCE, BRIDGE and BRIGHT studies. In 2015, we completed a phase I/II
clinical trial of PRX-102. In the phase III clinical program, we are studying two alternative dosing regimens for PRX-102 with
the potential for improved efficacy and lower treatment burden versus existing treatments. The 1 mg/kg every two-weeks regimen
offers the potential for superior enzyme replacement therapy while the 2 mg/kg every four weeks regimen offers the potential for
better quality of life. Enrolment has been completed in each of the BALANCE, BRIDGE and BRIGHT studies.
Phase I/II Study
Our phase I/II clinical trial of PRX-102,
which we completed in 2015, was a worldwide, multi-center, open label, dose ranging study to evaluate the safety, tolerability,
pharmacokinetics, immunogenicity and efficacy parameters of PRX-102 in adult Fabry patients.
Sixteen adult naive Fabry patients (9 male and 7 female) completed the trial, each in one of three dosing groups, 0.2 mg/kg, 1mg/kg
and 2mg/kg. Each patient received intravenous infusions of PRX-102 every two weeks for 12 weeks,
with efficacy follow-up after six-month and twelve-month periods. All patients that completed the trial opted to continue to receive
1 mg/kg of PRX-102 in an open-label, 60-month extension study under which all patients have
been switched to receive 1 mg/kg of the drug, the selected dose for our phase III
studies of PRX-102.
The data set forth below was recorded at 24 months from 11 patients
enrolled and treated in the long-term open-label extension trial. Patients who did not continue in the extension trial included
female patients who became or planned to become pregnant, and therefore were unable to continue in accordance with the study protocol,
and patients that relocated to a location where treatment was not available under the clinical study.
Lyso Gb3 levels decreased approximately 90% from baseline.
Renal function remained stable with mean eGRF levels of 108.02 and 107.20 at baseline and 24 months, respectively with a
modest annual eGFR slope of -2.1. An improvement across all the gastrointestinal symptoms evaluated, including severity and
frequency of abdominal pain and frequency of diarrhea, were noted. Cardiac parameters, including LVM, LVMI and EF, remained
stable with no cardiac fibrosis development detected. In conclusion, an improvement of over 40% in disease severity was shown
as measured by the Mainz Severity Score Index (MSSI), a score compiling the different elements of the disease severity
including neurological, renal and cardiovascular parameters. In addition, an improvement was noted in each of the
individual parameters of the MSSI.
The majority of adverse events were mild to moderate in severity,
and transient in nature. During the first 12 months of treatment, only three of 16 patients (less than 19%) formed anti-drug antibodies
(ADA), of which two of these patients (less than 13%) had neutralizing antibodies. Importantly, however, the ADAs turned negative
for all three of these patients following 12 months of treatment. The ADA positivity effect had no observed impact on the
safety, efficacy or continuous biomarker reduction of PRX-102.
BALANCE Study
The BALANCE Study is a
24-month, randomized, double blind, active control study of PRX-102 in Fabry disease patients with impaired renal function. Patients
previously treated with agalsidase beta for approximately one year and on a stable dose for at least six months were screened and
then randomized to be switched and treated with 1 mg/kg of PRX-102 or continue treatment with 1mg/kg of agalsidase beta. Patients
receive intravenous infusions of 1mg/kg administered every two weeks. Patients are randomized in a 2:1 ratio to PRX-102 or agalsidase
beta. In the study, randomization is being stratified by urinary protein to creatinine ratio (UPCR) of < or ≥ 1 g/g by spot
urine sample. No more than 50% of the patients enrolled in the study are female. Patients participating in the study are being
evaluated to, among other disease parameters, determine if their renal function continues to deteriorate at the same rate while
being treated with agalsidase beta as measured by eGFR slope. Cardiac assessment, Lyso-Gb3, pain, quality of life, immunogenicity,
clinical events and pharmacokinetic and other parameters are also being evaluated. In addition, participating patients are being
evaluated to assess the safety and tolerability of PRX-102.
The primary endpoint for the BALANCE study, which was agreed
with both the FDA and the EMA, is the comparison in the rate of decline of eGFR slope between agalsidase
beta and PRX-102. At 12 months, we intend to conduct an interim
analysis to test for non-inferiority to support an anticipated regulatory filing with the EMA. At the same time, we intend to approach
the FDA to request its review of the then totality of data. Notwithstanding, patients enrolled in the study will continue to be
treated for a total of 24 months, at which point the data will be analyzed to test for superiority, which is the original guidance
we received from the FDA.
BRIDGE Study
The
BRIDGE study is an open label switch-over study evaluating the safety and efficacy of PRX-102,
1 mg/kg infused every two weeks, in up to 22 Fabry patients currently treated with agalsidase alfa for at least two years and
on a stable dose for at least six months. Patients are screened and evaluated over three months while continuing agalsidase alfa
treatment. Following the screening period, each patient was enrolled and switched from agalsidase
alfa treatment to receive intravenous (IV) infusions of PRX-102 1 mg/kg every
two weeks for 12 months. Patients have the option to receive PRX-102 infusions in
a home care setting based on infusion tolerability and country regulation.
An
interim analysis of the BRIDGE study will be used to support the expected BLA filing under Accelerated Approval, and we anticipate
that the final analysis will be used to support a marketing authorization application (MAA) with the EMA.
The
12-month interim data from the first 16 of 22 adult patients enrolled (9 males and 7 females) demonstrated a mean improvement
in kidney function, in both male and female patients, when switched from agalsidase alfa to PRX-102.
One
hundred percent of the progressing patients, those with an estimated Glomerular Filtration Rate (eGFR) slope between -5 and -3
mL/min/1.73 m2/year, and 66.7% in the fast progressing group, with an eGFR slope < -5 mL/min/1.73 m2/year,
achieved the proposed therapeutic goals (eGFR slope ≥ -3 mL/min/1.73 m2/year for progressing patients, and ≥
-5 mL/min/1.73m2/year or more than 50% decrease in progression for fast progressing patients) after switching to PRX-102.
The majority of the patients who completed the study rolled over to a long-term extension study, continuing to be treated with
PRX-102.
In
the study, after one year, the mean annualized eGFR slope improved from -5.10 mL/min/1.73m2/year while on agalsidase
alfa to -0.23 mL/min/1.73m2/year on PRX-102. Baseline characteristics
of these patients, ages 27 to 60 years, were: mean eGFR 75.45 in males and 85.78 mL/min/1.73m2 in females, annualized
pre-switching eGFR slope was -5.04 and -5.18 mL/min/1.73m2/year, in males and females respectively, mean residual leucocytes
enzymatic activity 5.9% of lab normal mean in males and 27.9% in females, and plasma lyso-Gb3 mean levels 53.6 and 13.8 nM, in
males and females, respectively.
PRX-102
was found to be well tolerated in the study, with all adverse events being transient in nature
without sequelae. Most of the patients who were eligible for home care therapy per country regulation were treated under a home
care arrangement in which certain of the scheduled infusions were performed at the patients’ home.
BRIGHT
Study
The
BRIGHT study is a 12 month, open-label switchover study to assess the safety, efficacy and pharmacokinetics (PK) of PRX-102
2 mg/kg administered every 4 weeks in up to 30 Fabry patients previously treated with an enzyme replacement therapy (ERT):
agalsidase alfa or agalsidase beta. To determine eligibility for participation in the study, candidates were screened to identify
and select Fabry patients with stable kidney disease. Patients that matched the criteria were enrolled in the study and switched
from their current treatment of intravenous (IV) infusions every 2 weeks to 2 mg/kg of PRX-102 every 4 weeks for 12 months.
Patients
participating in the study were evaluated to, among other disease parameters, determine if their kidney disease has not further
deteriorated while being treated with the four-week dosing regimen as measured by eGFR and Lyso Gb3, as well as other parameters.
In addition, participating patients were evaluated to assess the safety and tolerability of PRX-102.
To
date, substantially all patients that were enrolled in the BRIGHT study remain on the 4-week dosing regimen, and all of the patients
that completed the study opted, with the advice of the treating physician, to continue treatment under the 4-week dosing regimen
in a long-term extension study.
Commercialization
Agreements with Chiesi Farmaceutici
On
October 19, 2017, Protalix Ltd. and Chiesi entered into the
Chiesi Ex-US Agreement pursuant to which Chiesi was granted an exclusive license for all markets outside of the United States to
commercialize PRX-102. Under
the Chiesi Ex-US 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 in the aggregate, capped at $10.0 million
per year. Protalix Ltd. is also eligible to receive an additional up to a maximum of $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 PRX-102
from Protalix Ltd., 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 PRX-102.
On
July 23, 2018, Protalix Ltd. entered into the Chiesi US Agreement
with respect to the development and 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,
in the aggregate, 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 under the Chiesi US Agreement to Protalix Ltd., depending on the amount of annual sales, subject to certain terms and conditions,
as consideration for product supply.
Elelyso® for the Treatment of Gaucher Disease
Elelyso (taliglucerase alfa), our first commercial product,
was approved by the FDA in 2012 for injection as an enzyme replacement therapy (ERT) for the long-term treatment of adult patients
with a confirmed diagnosis of type 1 Gaucher disease. In August 2014, the FDA approved Elelyso for injection for pediatric
patients. Elelyso is the first plant cell derived recombinant protein to be approved by the FDA for the treatment of Gaucher disease
and is now approved in over 20 markets.
Gaucher disease is a $1.5 billion global annual therapeutic
market that includes Sanofi’s Cerezyme®, Shire’s (acquired by Takeda Pharmaceutical Company Limited)
Vpriv® and Sanofi’s Cerdelga®.
Commercialization Agreements for Elelyso
We have licensed to Pfizer the global rights to Elelyso in all
markets excluding Brazil. Pfizer retains 100% of revenue and reimburses 100% of direct costs. We manufacture drug substance for
Pfizer, subject to certain terms and conditions.
For the first 10-year period after the execution of our 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.
We maintain distribution rights to Elelyso in Brazil (marketed
as alfataliglicerase) through a supply and technology transfer agreement with Fiocruz, an arm of the Brazilian Ministry of Health.
Sales of alfataliglicerase in Brazil are expected to be $9.1 million for 2019.
OPRX-106 for the Treatment of Inflammatory Bowel Disease
OPRX-106 is a plant cell-expressed recombinant human tumor necrosis
factor receptor II fused to an IgG1 Fc domain (TNFRII-Fc), for inhibiting TNF alpha. It is in development for oral administration.
When administered orally and while passing through the digestive tract, the plant cells function as a natural delivery vehicle,
having the unique attribute of a cellulose cell wall, which makes them resistant to degradation compared to proteins produced via
mammalian cell expression.
Through oral administration, OPRX-106 is designed to work locally
in the gut, avoiding the systemic exposure that occurs when TNF alpha inhibitors are administered by injection or intravenous infusion.
Oral administration may potentially lead to a safer to use anti-TNF.
OPRX-106 may also be less immunogenic which can potentially
result in longer-term efficacy.
We believe that our oral delivery mechanism can potentially
prove to be a safer and more convenient method of protein administration and could be applied to additional proteins in certain
indications.
Alidornase Alfa (PRX-110)
Alidornase alfa (PRX-110) is a proprietary
plant cell-expressed recombinant form of human deoxyribonuclease I (DNase I). In cystic fibrosis (CF) patients, the
accumulation of sputum in the lungs exposes them to recurrent infections and compromises lung function. DNase
I therapy, or dornase alfa, is generally recommended for CF patients to improve lung function and reduce exacerbations.
However, DNase I activity is compromised by actin, a globular
multi-functional protein, found in high concentration in the sputum of CF patients, that is a potent inhibitor of DNase I.
As such, we believe that actin may decrease the enzyme’s DNA degradation activity and potentially interfere with the effectiveness
of inhaled DNase I in the lungs of CF patients.
In order to reduce the actin-DNase I interaction and the
subsequent inhibition of DNase I activity by actin, we developed alidornase alfa by chemically modifying the enzyme forming
an actin inhibition resistant DNase I. This novel treatment candidate may result in improved lung function and decreased incidence
of recurrent infections in patients. Thus, we believe there is the potential that our recombinant form of the enzyme will demonstrate
significantly enhanced efficacy.
Intellectual Property 2019
A key element of our overall strategy is to establish a broad
portfolio of patents to protect our proprietary technology, proprietary product and product candidates and their methods of use.
We hold a broad portfolio of more than 75 patents in Europe, the United States, Israel and additional countries worldwide, as well
as more than 20 pending patent applications.
During 2019, patents were granted in Canada,
India and the United States for the patent family named “Large Scale Disposable Bioreactor,” adding these to the 11
previously granted patents in this family. Patents were also granted in India and the United States for the patent family named
“Stabilized Alpha-Galactosidase and Uses Thereof” adding these to the 18 previously granted patents in this family.
Another patent was granted in the United States for the patent family named “Nucleic acid construct for expression of Alpha-Galactosidase
in plants and plant cells,” adding these to the seven previously granted patents in this family. In addition, national phase filings
were performed in certain countries worldwide for the patent family named “Therapeutic Regimen For The Treatment Of Fabry
using Stabilized Alpha-Galactosidase.” An Israeli patent was granted for the patent family named “Dry powder formulations
of DNAse” adding to the already granted U.S. patent in this family.
Scientific Presentations 2019
On February 7, 2019, Mr. Myrl D. Holida, PA, of the University
of Iowa Health Care in Iowa City, Iowa, a principal investigator in our phase III clinical trials of PRX-102, delivered an
oral presentation entitled “Once every 4 weeks – 2 mg/kg of pegunigalsidase alfa for treating Fabry disease; Preliminary
results of a Phase 3 study,” highlighting preliminary PK and safety data from our BRIGHT study. The presentation was delivered
at the 15th Annual WORLDSymposiumTM 2019, which took place February 4-8, 2019.
In addition to the oral presentation, the following poster presentations
were delivered at the conference with respect to PRX-102:
·
“Once every 4 weeks – 2 mg/kg of pegunigalsidase alfa for treating Fabry disease; Preliminary results of a phase 3
study,” by Myrl D. Holida.
·
“Pegunigalsidase alfa for the treatment of Fabry disease: Preliminary results from a phase III open label, switch over study
from agalsidase alfa,” by Prof. Ales Linhart of the Všeobecná fakultní nemocnice v Praze, Prague Czech
Republic, a principal investigator in our phase III clinical trials of PRX-102.
·
“Analysis of the baseline characteristics of Fabry disease patients screened for the pegunigalsidase alfa phase III BALANCE
study,” by Prof. David Warnock, Professor of Nephrology at the University of Alabama Birmingham, Birmingham, Alabama, a consultant
to our company.
Research & Development
We continuously work on the further development of our ProCellEx plant cell expression technology and
bioreactor system. In addition, we are working on the development of new products, each in different initial stages of development,
for specific products for which there are unmet needs in terms of efficacy and safety. Our development strategy focuses on the
utilization of different modification approaches and development improvements, customized for each protein product, in all stages
of expression and development.
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 critical accounting policies since we filed our Annual Report on Form 10-K for the year ended December 31, 2018.
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.
Results of Operations
Three months ended September 30, 2019
compared to the three months ended September 30, 2018
Revenues from Selling Goods
We recorded revenues from selling goods of $5.1 million
during the three months ended September 30, 2019, an increase of $4.5 million,
or 673%, compared to revenues of $663,000
for the three months ended September 30, 2018. The increase resulted primarily from an increase of $3.2 million
in sales of drug product to Brazil as well as an increase of $1.3 million in sales of drug substance to Pfizer.
Revenues from License and R&D Services
We recorded revenues from license and R&D services
of $9.1 million for the three months ended September 30, 2019, a decrease of $2.6 million, or 22%, compared to
revenues of $11.7 million for the three months ended September 30, 2018. Revenues from the license agreements
represent the revenues we recognized in connection with the Chiesi Agreements. The decrease resulted primarily from a
cumulative catch-up adjustment of $6.2 million in the third quarter of 2018 due to the Chiesi
US Agreement, which we entered into on July 23, 2018.
Cost of Goods Sold
Cost of goods sold was $3.2 million
for the three months ended September 30, 2019, an increase of $1.3 million,
or 67%, from cost of goods sold of $1.9 million
for the three months ended September 30, 2018. The increase is primarily due to an increase in sales of goods.
Research and Development Expenses, Net
Research and development expenses were $10.0 million for
the three months ended September 30, 2019, similar to the $10.1 million of research and development expenses for the
three months ended September 30, 2018.
We expect research and development expenses to continue to be
our primary expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
$2.6 million for the three months ended September 30, 2019, a decrease of $1.5 million, or 37%, compared to
$4.1 million for the three months ended September 30, 2018. The decrease is primarily due to costs related to the
Chiesi US Agreement we entered into in the third quarter of 2018, which were not incurred in the third quarter of 2019.
Financial Expenses, net
Financial expenses net were $2.0 million
for the three months ended September 30, 2019, an increase of $0.4 million, or 28%, compared to financial expenses net
of $1.6 million for the three months ended September 30, 2018. Financial expenses are comprised primarily of interest
expense on our outstanding convertible notes of $1.1 million for the three months ended September 30, 2019 and 2018.
The increase is primarily due to exchange rate differences.
Nine months ended September 30, 2019
compared to the nine months ended September 30, 2018
Revenues from Selling Goods
We recorded revenues from selling goods of $12.1 million
during the nine months ended September 30, 2019, an increase of $4.9 million, or 67%, compared to revenues of $7.2 million
for the nine months ended September 30, 2018. The increase resulted primarily from an increase of $4.8 million in sales of
drug product to Brazil as well as an increase of $52,000 in sales of drug substance to Pfizer.
Revenues from License and R&D Services
We recorded revenues from license and R&D services of
$24.8 million for the nine months ended September 30, 2019, an increase of $8.1 million, or 49%, compared to
revenues of $16.7 million for the nine months ended September 30, 2018. Revenues from the license agreements
represent the revenues we recognized in connection with the Chiesi Agreements. The increase is primarily due
to revenues recognized in connection with the Chiesi US Agreement which we entered into on July 23, 2018.
Cost of Goods Sold
Cost of goods sold was $7.9 million for the nine months
ended September 30, 2019, an increase of $0.9 million, or 13%, from cost of goods sold of $7.0 million for the nine
months ended September 30, 2018. The increase is primarily due to an increase in sales of goods.
Research and Development Expenses, Net
Research and development expenses were $35.0 million
for the nine months ended September 30, 2019, an increase of $11.3 million, or 47%, compared to $23.8 million
of research and development expenses for the nine months ended September 30, 2018. The increase resulted primarily from
an increase of $8.5 million in clinical trial related costs as well as a decrease of $1.8 million in grants
received from the Israeli Innovation Authority.
We expect research and development expenses to continue to be
our primary expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $6.9 million
for the nine months ended September 30, 2019, a decrease of $1.9 million, or 21%, compared to $8.7 million for the
nine months ended September 30, 2018. The decrease is primarily due to costs related to the Chiesi US Agreement we entered
into in the third quarter of 2018, which were not incurred in the third quarter of 2019.
Financial Expenses, net
Financial expenses net were $5.7 million
for the nine months ended September 30, 2019, an increase of $0.3 million, or 5%, compared to financial expenses net
of $5.4 million for the nine months ended September 30, 2018. Financial expenses are comprised primarily of interest
expense on our outstanding convertible notes of $3.3 million for the nine months ended September 30, 2019 and 2018. The
increase is primarily due to exchange rate differences.
Liquidity and Capital Resources
Sources of Liquidity
Our sources of liquidity include our cash balances. At September 30,
2019, we had $21.4 million in cash
and cash equivalents. We have primarily financed our operations through equity and debt financings, business collaborations, and
grant funding. In the fourth quarter of 2017, Chiesi made a payment to
Protalix Ltd. of $25.0 million in connection with the execution
of the Chiesi Ex-US Agreement and in the third quarter of 2018, Chiesi made a payment to Protalix Ltd. of $25.0 million
in connection with the execution of the Chiesi US Agreement.
On October 16, 2019, we received total proceeds of approximately
$2.6 million from expense reimbursements in relation to our collaboration with Chiesi and on October 18, 2019, we received
total proceeds of approximately $3.2 million from sales of alfataliglicerase to Fiocruz.
Cash Flows
Net cash used in operations was $15.7 million
for the nine months ended September 30, 2019. The net loss for the nine months ended September 30, 2019 of $18.6 million
was further increased by a $4.8 million increase in accounts receivable,
but was partially offset by an increase of $4.9 million in accounts payable
and accruals and by a decrease in inventories of $1.0 million. Net cash
used in investing activities for the nine months ended September 30, 2019 was $0.9 million
and consisted primarily of purchases of property and equipment, and an increase in restricted deposit.
Net cash used in operations was $3.7 million
for the nine months ended September 30, 2018. The net loss for the nine months ended September 30, 2018 of $21.0 million
was partially offset by an increase of $18.3 million in contracts liabilities representing an upfront payment and certain
expense reimbursements actually received from Chiesi in connection with our license agreements with Chiesi which we have not yet
recognized as revenues. Net cash used in investing activities for the nine months ended September 30, 2018 was $675,000 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 for the repayment of convertible notes.
Future Funding Requirements
As a result of our significant research
and development expenditures and the lack of significant revenue from sales of taliglucerase alfa, we have generated
operating losses from our continuing operations since our inception. We currently have outstanding $57.9 million
aggregate principal amount of our 2021 Notes that are secured
with a perfected lien on all of our assets. Under the terms of the
indenture governing the 2021 Notes, we are required to maintain a minimum cash balance of at least $7.5 million. These
factors raise substantial doubt as to our ability to continue as a going concern. In addition, as previously disclosed, we
have received a deficiency letter from the NYSE American stating that we are not in compliance with the continued listing
standards as set forth in Section 1003(a)(i) – (iii) of the NYSE American Company Guide as we have reported a
stockholders’ equity deficiency as of June 30, 2019 and net losses in our five most recent fiscal years ended December
31, 2018. The letter has no immediate effect on the listing of our common stock on the NYSE American. Our common stock will
trade on the NYSE American while we regain compliance with the continued listing standards.
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 PRX-102. Our material cash needs for the next 24 months will include, among other expenses, (i) costs of preclinical and clinical
trials, (ii) employee salaries, (iii) payments for rent and operation of our manufacturing facilities, (iv) fees to our consultants
and legal advisors, patents and fees for service providers in connection with our research and development efforts and (v) payment
of principal and interest on our outstanding convertible promissory notes and other debt.
We will be required to raise a substantial
amount of capital in the future in order to develop and commercialize our product candidates and continue research and development
activities. Our ability to raise capital, and the amounts of necessary capital, will depend on many other factors, including:
·
our ability to maintain the listing of our common stock with the NYSE American;
·
our efforts to commercialize PRX-102, and those of Chiesi;
·
our progress in commercializing alfataliglicerase in Brazil;
·
the costs of commercialization activities, including product marketing, sales and distribution;
·
the progress and results of our clinical trials, particularly our clinical trials of PRX-102;
·
the duration and cost of discovery and preclinical development and laboratory testing and clinical trials for our product
candidates;
·
conversions of our 2021 Notes from time to time;
·
the timing and outcome of regulatory review of our product candidates; and
·
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims and other intellectual
property rights.
We expect to finance our future cash needs
through corporate collaborations, licensing or similar arrangements, public or private equity offerings and/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 Agreements.
Our management is in the process of evaluating
refinancing and restructuring alternatives, including a restructuring of our outstanding convertible notes, and related transactions.
However, there is no certainty about our ability to obtain such funding.
The financial information has been prepared
on a going concern basis, which assumes we will continue to realize our assets and discharge our liabilities in the normal course
of business. If we do not raise the requisite funds, we will need to curtail or cease operations. These financial statements do
not include any adjustments that may be necessary should we be unable to continue as a going concern.
Effects of Currency Fluctuations
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 nine months ended September 30, 2019 and September 30, 2018.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
as of each of September 30, 2019 and September 30, 2018.