Item 1. Financial Statements
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
(Unaudited)
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,482
|
|
|
$
|
63,281
|
|
Accounts receivable – Trade
|
|
|
7,292
|
|
|
|
693
|
|
Other assets
|
|
|
2,689
|
|
|
|
2,321
|
|
Inventories
|
|
|
7,479
|
|
|
|
5,245
|
|
Assets of discontinued operation
|
|
|
211
|
|
|
|
327
|
|
Total current assets
|
|
$
|
51,153
|
|
|
$
|
71,867
|
|
|
|
|
|
|
|
|
|
|
FUNDS IN RESPECT OF EMPLOYEE RIGHTS UPON RETIREMENT
|
|
|
1,919
|
|
|
|
1,677
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
7,986
|
|
|
|
8,703
|
|
Total assets
|
|
$
|
61,058
|
|
|
$
|
82,247
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES NET OF CAPITAL DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accruals:
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
8,691
|
|
|
$
|
4,007
|
|
Other
|
|
|
11,989
|
|
|
|
7,496
|
|
Convertible notes
|
|
|
5,911
|
|
|
|
53,872
|
|
Deferred revenues
|
|
|
|
|
|
|
837
|
|
Total current liabilities
|
|
$
|
26,591
|
|
|
$
|
66,212
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
53,625
|
|
|
|
19,343
|
|
Liability for employee rights upon retirement
|
|
|
2,612
|
|
|
|
2,348
|
|
Promissory note
|
|
|
4,301
|
|
|
|
4,301
|
|
Total long term liabilities
|
|
$
|
60,538
|
|
|
$
|
25,992
|
|
Total liabilities
|
|
$
|
87,129
|
|
|
$
|
92,204
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL DEFICIENCY
|
|
|
(26,071
|
)
|
|
|
(9,957
|
)
|
Total liabilities net of capital deficiency
|
|
$
|
61,058
|
|
|
$
|
82,247
|
|
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)
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
REVENUES
|
|
$
|
16,773
|
|
|
$
|
7,118
|
|
|
$
|
7,526
|
|
|
$
|
4,670
|
|
COST OF REVENUES
|
|
|
(13,677
|
)
|
|
|
(6,446
|
)
|
|
|
(6,066
|
)
|
|
|
(4,248
|
)
|
GROSS PROFIT
|
|
|
3,096
|
|
|
|
672
|
|
|
|
1,460
|
|
|
|
422
|
|
RESEARCH AND DEVELOPMENT EXPENSES (1)
|
|
|
(22,389
|
)
|
|
|
(23,700
|
)
|
|
|
(7,118
|
)
|
|
|
(6,353
|
)
|
Less – grants
|
|
|
2,545
|
|
|
|
4,800
|
|
|
|
729
|
|
|
|
1,297
|
|
RESEARCH AND DEVELOPMENT EXPENSES, NET
|
|
|
(19,844
|
)
|
|
|
(18,900
|
)
|
|
|
(6,389
|
)
|
|
|
(5,056
|
)
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (2)
|
|
|
(8,187
|
)
|
|
|
(6,215
|
)
|
|
|
(2,836
|
)
|
|
|
(2,014
|
)
|
OPERATING LOSS
|
|
|
(24,935
|
)
|
|
|
(24,443
|
)
|
|
|
(7,765
|
)
|
|
|
(6,648
|
)
|
FINANCIAL EXPENSES
|
|
|
(8,809
|
)
|
|
|
(2,715
|
)
|
|
|
(3,680
|
)
|
|
|
(910
|
)
|
FINANCIAL INCOME
|
|
|
1,670
|
|
|
|
606
|
|
|
|
8
|
|
|
|
268
|
|
LOSS FROM CHANGE IN FAIR VALUE OF CONVERTIBLE NOTES EMBEDDED DERIVATIVE
|
|
|
(38,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL EXPENSES, NET
|
|
|
(45,200
|
)
|
|
|
(2,109
|
)
|
|
|
(3,672
|
)
|
|
|
(642
|
)
|
LOSS FROM CONTINUING OPERATIONS
|
|
|
(70,135
|
)
|
|
|
(26,552
|
)
|
|
|
(11,437
|
)
|
|
|
(7,290
|
)
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
|
-
|
|
|
|
(189
|
)
|
|
|
-
|
|
|
|
-
|
|
NET LOSS FOR THE PERIOD
|
|
$
|
(70,135
|
)
|
|
$
|
(26,741
|
)
|
|
$
|
(11,437
|
)
|
|
$
|
(7,290
|
)
|
NET LOSS PER SHARE OF COMMON STOCK – BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(0.55
|
)
|
|
|
(0.27
|
)
|
|
|
(0.09
|
)
|
|
|
(0.07
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
Net loss per share of common stock
|
|
$
|
(0.55
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING LOSS PER SHARE-BASIC AND DILUTED
|
|
|
128,223,722
|
|
|
|
99,766,245
|
|
|
|
132,549,001
|
|
|
|
99,821,970
|
|
(1) Includes share-based compensation
|
|
$
|
163
|
|
|
$
|
448
|
|
|
$
|
43
|
|
|
$
|
82
|
|
(2) Includes share-based compensation
|
|
$
|
128
|
|
|
$
|
317
|
|
|
$
|
32
|
|
|
$
|
81
|
|
The accompanying notes
are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN
SHAREHOLDERS’ EQUITY (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, 2015
|
|
|
99,800,397
|
|
|
$
|
100
|
|
|
$
|
194,064
|
|
|
$
|
(183,291
|
)
|
|
$
|
10,873
|
|
Changes during the nine-month period ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
697
|
|
|
|
|
|
|
|
697
|
|
Share-based compensation related to restricted stock award
|
|
|
7,843
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
68
|
|
Exercise of options
|
|
|
122,162
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
Net loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,552
|
)
|
|
|
(26,552
|
)
|
Net loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189
|
)
|
|
|
(189
|
)
|
Balance at September 30, 2016
|
|
|
99,930,402
|
|
|
|
100
|
|
|
|
194,829
|
|
|
|
(210,032
|
)
|
|
|
(15,103
|
)
|
Balance at December 31, 2016
|
|
|
124,134,085
|
|
|
$
|
124
|
|
|
$
|
202,575
|
|
|
$
|
(212,656
|
)
|
|
$
|
(9,957
|
)
|
Changes during the nine-month period ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
291
|
|
|
|
|
|
|
|
291
|
|
Reclassification of embedded derivative
|
|
|
|
|
|
|
|
|
|
|
43,634
|
|
|
|
|
|
|
|
43,634
|
|
Convertible notes conversions
|
|
|
9,711,235
|
|
|
|
10
|
|
|
|
8,771
|
|
|
|
|
|
|
|
8,781
|
|
Conversion
component related to convertible notes
issuance
|
|
|
|
|
|
|
|
|
|
|
1,315
|
|
|
|
|
|
|
|
1,315
|
|
Net loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,135
|
)
|
|
|
(70,135
|
)
|
Balance at September 30, 2017
|
|
|
133,845,320
|
|
|
$
|
134
|
|
|
$
|
256,586
|
|
|
$
|
(282,791
|
)
|
|
$
|
(26,071
|
)
|
|
*
|
Represents an amount less than $1.
|
|
(1)
|
Common Stock, $0.001 par value; Authorized – as of
September 30, 2017 and 2016 - 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)
|
|
Nine months ended
|
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(70,135
|
)
|
|
$
|
(26,741
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
(189
|
)
|
Loss from continuing operations
|
|
|
(70,135
|
)
|
|
|
(26,552
|
)
|
Adjustments required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
291
|
|
|
|
765
|
|
Depreciation
|
|
|
1,469
|
|
|
|
1,489
|
|
Financial (income) expenses, net (mainly exchange differences)
|
|
|
13
|
|
|
|
(375
|
)
|
Changes in accrued liability for employee rights upon retirement
|
|
|
54
|
|
|
|
(31
|
)
|
Gain on amounts funded in respect of employee rights upon retirement
|
|
|
(21
|
)
|
|
|
(3
|
)
|
Loss on conversion of convertible notes
|
|
|
587
|
|
|
|
-
|
|
Change in fair value of convertible notes embedded derivative
|
|
|
38,061
|
|
|
|
-
|
|
Amortization of debt issuance costs and debt discount
|
|
|
1,710
|
|
|
|
333
|
|
Issuance of shares for interest payment in connection with conversions of convertible notes
|
|
|
1,111
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in deferred revenues
|
|
|
(837
|
)
|
|
|
(291
|
)
|
Increase in accounts receivable and other assets
|
|
|
(6,467
|
)
|
|
|
(1,358
|
)
|
Decrease (increase) in inventories
|
|
|
(2,234
|
)
|
|
|
907
|
|
Increase in accounts payable and accruals
|
|
|
8,698
|
|
|
|
367
|
|
Net cash used in continuing operations
|
|
|
(27,700
|
)
|
|
|
(24,749
|
)
|
Net cash provided by (used in) discontinued operations
|
|
|
116
|
|
|
|
(11
|
)
|
Net cash used in operating activities
|
|
$
|
(27,584
|
)
|
|
$
|
(24,760
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
(681
|
)
|
|
$
|
(732
|
)
|
Increase in restricted deposit
|
|
|
(336
|
)
|
|
|
|
|
Amounts funded in respect of employee rights upon retirement, net
|
|
|
(68
|
)
|
|
|
7
|
|
Net cash used in investing activities
|
|
$
|
(1,085
|
)
|
|
$
|
(725
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net payment for conversion of convertible notes
|
|
|
(10,961
|
)
|
|
|
-
|
|
Net proceeds from issuance of convertible notes
|
|
|
9,542
|
|
|
|
-
|
|
Net cash used in financing activities
|
|
|
(1,419
|
)
|
|
|
-
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
$
|
289
|
|
|
$
|
431
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(29,799
|
)
|
|
|
(25,054
|
)
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
63,281
|
|
|
|
76,374
|
|
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
33,482
|
|
|
$
|
51,320
|
|
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, 2017
|
|
|
September 30, 2016
|
|
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
666
|
|
|
$
|
642
|
|
Convertible notes conversions
|
|
$
|
7,668
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE ON CASH FLOWS
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,613
|
|
|
$
|
3,105
|
|
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 Uplyso
TM
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 mainly in the United States by 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 Pfizer Agreement, Pfizer and the Company shared revenues and expenses for the development and commercialization
of Elelyso on a 60%/40% basis globally, excluding Israel and 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 Fiocruz, an arm of the Brazilian MoH,
for taliglucerase alfa. Fiocruz’s purchases of Uplyso 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 low purchase amounts,
the Company is, at this time, continuing to supply Uplyso to Fiocruz under the Brazil Agreement, and patients continue to be treated
with Uplyso in Brazil. 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 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.
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, 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, 2016, filed by the Company with the Commission. The comparative balance sheet at December 31, 2016 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.
Diluted LPS is calculated in continuing operations. The
calculation of diluted LPS does not include 19,572,040 and 76,195,921 shares of Common Stock underlying outstanding options and
restricted shares of Common Stock and shares issuable upon conversion of the convertible notes for the nine months ended September
30, 2016 and 2017, respectively, and 19,484,667 and 80,696,070 shares of Common Stock for the three months ended September 30,
2016 and 2017, respectively, because the effect would be anti-dilutive.
NOTE 2 – INVENTORIES
Inventory at September 30, 2017 and December 31,
2016 consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(
U.S. dollars in thousands)
|
|
Raw materials
|
|
$
|
4,153
|
|
|
$
|
2,591
|
|
Work in progress
|
|
|
492
|
|
|
|
395
|
|
Finished goods
|
|
|
2,834
|
|
|
|
2,259
|
|
Total inventory
|
|
$
|
7,479
|
|
|
$
|
5,245
|
|
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.
As of September 30, 2017, the fair value of the
remaining $5.9 million in aggregate principal amount of the Company’s outstanding 4.5% convertible promissory notes due 2018,
of the remaining $61.9 million in aggregate principal amount of the Company’s outstanding 7.5% secured convertible promissory
notes due 2021, and $5.0 million in aggregate principal amount of the Company’s outstanding 4.5% convertible promissory notes
due 2022, is approximately $5.6 million, $76.9 million and $5.3 million, respectively, based on a Level 3 measurement. See note
5 for the parameters used in the valuation of fair value.
NOTE 4 – DISCONTINUED OPERATIONS
The Company accounted for the termination
of the Pfizer Agreement and the sale of the license as a discontinued operation, in accordance with ASU No. 2014-08. The following
assets and liabilities associated with the Company’s discontinued operations have been segregated and classified as assets
and liabilities of discontinued operations, as appropriate, in the consolidated balance sheets as of September 30, 2017 and December 31,
2016, respectively:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(
U.S. dollars in thousands)
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Accounts receivable - Trade
|
|
$
|
211
|
|
|
$
|
327
|
|
Total current assets of discontinued operations
|
|
$
|
211
|
|
|
$
|
327
|
|
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 – DISCONTINUED OPERATIONS
(continued)
:
The following summarizes financial information related
to the Company’s discontinued operations in the Company’s consolidated statements of operations for the nine months
ended September 30, 2017 and September 30, 2016:
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(
U.S. dollars in thousands)
|
|
REVENUES
|
|
|
|
|
|
$
|
209
|
|
COST OF REVENUES
|
|
|
|
|
|
|
(373
|
)
|
GROSS LOSS
|
|
|
|
|
|
|
(164
|
)
|
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
|
|
|
|
|
|
|
(25
|
)
|
NET LOSS FOR THE PERIOD FROM DISCONTINUED OPERATIONS
|
|
|
-
|
|
|
$
|
(189
|
)
|
NOTE 5 – CONVERTIBLE NOTES
On July 24, 2017, the Company entered into a Note
Purchase Agreement with certain institutional investors relating to the private issuance and sale by the Company of $10 million
in aggregate principal amount of its 7.5% secured convertible promissory notes due 2021. The 7.5% convertible notes were issued
pursuant to the base indenture dated December 7, 2016 (the existing 7.5% convertible notes).
Concurrently with the consummation of the purchase
described in the Note Purchase Agreement, the Company entered into a privately negotiated exchange agreement with certain of its
existing note holders to exchange $9.0 million in aggregate principal amount of the Company’s 4.5% convertible notes due
2018 for $8.55 million in aggregate principal amount of 4.5% convertible notes due 2022 (the “2017 Exchange Agreement”).
All of the Company’s outstanding convertible
notes are accounted for using the guidance set forth in the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (ASC) 815 requiring that the Company 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. The Company
accounts for the 4.5% convertible notes due 2018, and for the 4.5% convertible notes due 2022, as a liability, on an aggregated
basis, in their entirety. The conversion feature for the Company’s existing 7.5% convertible notes is accounted for as a
derivative which is bifurcated from the debt host contract and is measured at fair value through the statement of operations. On
April 12, 2017, the Company received approval from its stockholders to issue shares of the Company’s Common Stock in excess
of 19.9% of the Company’s outstanding shares of Common Stock to settle conversion requests and pay interest on the Company’s
issued 7.5% convertible notes. As a result, the Company reclassified the embedded derivative to equity. During the nine months
ended September 30, 2017 such measurement of the derivative resulted in a non-cash charge to the Company’s statement of operations
of $38,061 thousand. The conversion feature of the 7.5% convertible notes issued in July 2017 is accounted for as equity, which
is bifurcated from the debt host contract.
As the terms of the 4.5% convertible notes due 2018
and the 4.5% convertible notes due 2022 are substantially different, the 2017 Exchange Agreement was considered an extinguishment
of debt, where the Company used fair value method to account for the 4.5% convertible notes due 2022. The Company recognized a
loss of $1.3 million due to the extinguishment.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – CONVERTIBLE NOTES
(continued)
:
The debt discount and debt issuance costs regarding
the issuance of the Company’s outstanding 4.5% convertible notes due 2018 are deferred and amortized over the applicable
convertible period.
Issuance costs regarding the issuance of the Company’s
7.5% convertible notes were allocated to the liability, equity component, derivative and shares of Common Stock based on their
relative fair values. Issuance costs regarding the issuance of the Company's 4.5% convertible notes due 2022 were allocated to
the liability.
Issuance costs that were allocated to liability will be
amortized using the effective interest rate, other than issuance costs that were allocated to derivative, which were expensed immediately.
During the nine months ended September 30, 2017, note
holders converted (i) approximately $10.8 million in aggregate principal amount of the Company’s 7.5% convertible notes
into a total of 5,044,484 shares of Common Stock and cash payments equal to approximately $11.0 million and (ii) approximately
$3.55 million in aggregate principal amount of the Company’s 4.5% convertible notes due 2022 into a total of 4,666,751 shares
of Common Stock.
The Company prepared a valuation of the fair value
of the 4.5% convertible notes due 2018, for the 4.5% convertible notes due 2022 and for the 7.5% convertible notes due 2021 (a
Level 3 valuation) as of September 30, 2017. The value 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:
(U.S. Dollars in thousands)
|
|
4.5% notes due 2018
|
|
|
4.5% notes due 2022
|
|
|
7.5% notes due 2021
|
|
Stock price (USD)
|
|
|
0.58
|
|
|
|
0.58
|
|
|
|
0.58
|
|
Expected term
|
|
|
0.96
|
|
|
|
4.38
|
|
|
|
4.13
|
|
Risk free rate
|
|
|
1.33%
|
|
|
|
1.87%
|
|
|
|
1.83%
|
|
Volatility
|
|
|
103.71%
|
|
|
|
64.73%
|
|
|
|
66.34%
|
|
Yield
|
|
|
11.87%
|
|
|
|
14.22%
|
|
|
|
11.30%
|
|
NOTE 6 – SUBSEQUENT EVENTS
On October 18, 2017, holders of the Company’s 4.5%
convertible notes due 2022 converted all of the remaining $5.0 million face value of the notes in exchange for 5,882,353 shares
of Common Stock. Additional shares will be issued in connection with the make-whole premium associated with the converted notes.
On October 17, 2017, Protalix Ltd. entered into an
Exclusive License and Supply Agreement with Chiesi, or the Chiesi Agreement, with respect to the development and commercialization
of pegunigalsidase alfa, or PRX-102. Under the terms of the Chiesi Agreement, Protalix Ltd. granted to Chiesi exclusive licensing
rights for the commercialization of PRX-102 for all markets outside of the United States. Protalix Ltd. maintains the exclusive
commercialization rights to PRX-102 in the United States. Protalix Ltd. is entitled to an upfront, non-refundable, non-creditable
payment of $25 million from Chiesi in consideration for and as reimbursement of the costs sustained by Protalix Ltd. up to the
effective date of the Chiesi Agreement and additional payments of up to $25 million to cover development costs for PRX-102, subject
to a maximum of $10 million per year. Protalix Ltd. is also eligible to receive up to an additional $320 million in regulatory
and commercial milestone payments. Chiesi will also make tiered payments of 15% to 35% of its net sales to Protalix Ltd., depending
on the amount of annual sales, as consideration for the supply of PRX-102.
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, 2016. 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, 2016 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. We are now also applying the unique properties
of our ProCellEx system for the oral delivery of therapeutic proteins.
On May 1, 2012, the FDA approved for sale our first commercial product,
taliglucerase alfa for injection, an enzyme replacement therapy, or 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 called alfataliglicerase in Brazil and certain other Latin American countries, where
it is marketed under the name Uplyso
TM
. Taliglucerase alfa is marketed under the name Elelyso in other territories.
Since its
approval by the FDA, taliglucerase alfa has been marketed mainly in the United States by Pfizer, as provided in the exclusive license
and supply agreement by and between Protalix Ltd., our wholly-owned subsidiary, and Pfizer, which we refer to as the Pfizer Agreement.
In
October 2015, we entered into an Amended and Restated Exclusive License and Supply Agreement, or 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 initial Pfizer Agreement, Pfizer shared revenues and expenses for the development and commercialization of Elelyso with
us on a 60%/40% basis globally, excluding Israel and Brazil. 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 a Supply and Technology Transfer Agreement, or 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 Uplyso to date have been significantly below certain agreed upon purchase milestones and, accordingly, we have the
right to terminate the Brazil Agreement. Notwithstanding the low purchase amounts, we are, at this time, continuing to supply Uplyso
to Fiocruz under the Brazil Agreement, and patients continue to be treated with Uplyso 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 the best interest of our company.
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 trials.
(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.
alidornase alfa has successfully completed a phase II efficacy and safety study.
(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.
Patient enrollment in our phase II clinical trial of OPRX-106 for the treatment of ulcerative colitis was initiated in the fourth
quarter of 2016.
Except for the rights to commercialize taliglucerase alfa worldwide
(other than Brazil), which we licensed to Pfizer, and rights for pegunigalsidase outside the United States, which we licensed to
Chiesi, we hold the worldwide commercialization rights to all of our 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 not been any changes to our
significant accounting policies since the Annual Report on Form 10-K for the year ended December 31, 2016.
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 outstanding convertible notes are accounted for using the
guidance set forth in the Financial Accounting Standards Board, or FASB, Accounting Standards Codification (ASC) 815 requiring
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. We account for the 4.5% convertible notes due 2018, and the 4.5% convertible
notes due 2022, as a liability, on an aggregated basis, in their entirety. The conversion feature for our 7.5% convertible notes
issued in December 2016, is accounted for as a derivative which is bifurcated from the debt host contract and is measured at fair
value through the statement of operations. On April 12, 2017, we received approval from our stockholders to issue shares of our
common stock in excess of 19.9% of our outstanding shares of common stock to settle conversion requests and pay interest on our
issued 7.5% convertible notes. As a result, we reclassified the embedded derivative to equity. The conversion feature of the 7.5%
convertible notes issued in July 2017 is accounted for as equity.
As the terms of the 4.5% convertible notes due 2018 and
the 4.5% convertible notes due 2022 are substantially different, the 2017 Exchange Agreement was considered an extinguishment
of debt, where we used fair value to account for the 4.5% convertible notes due 2022. We recognized a loss of $1.3 million
due to the extinguishment.
The debt discount and debt issuance costs regarding the issuance
of our 4.5% convertible notes due 2018 are deferred and amortized over the applicable convertible period.
Issuance costs regarding the issuance of our 7.5% convertible
notes were allocated to the liability, equity component, derivative and shares of common stock based on their relative fair values.
Issuance costs regarding the issuance of our 4.5% convertible notes due 2022 were allocated to the liability. Issuance costs that
were allocated to liability will be amortized using the effective interest rate, other than issuance costs that were allocated
to derivative, which were expensed immediately.
During the nine months ended September 30, 2017, note holders
converted (i) approximately $10.8 million in aggregate principal amount of our 7.5% convertible notes into a total of 5,044,484
shares of our common stock and cash payments equal to approximately $11.0 million and (ii) approximately $3.55 million in aggregate
principal amount of our 4.5% convertible notes due 2022 into a total of 4,666,751 shares of our common stock.
Results of Operations
Three months ended September 30, 2017 compared to the three
months ended September 30, 2016
Revenues
We recorded revenues of $7.5 million during the three months ended
September 30, 2017, an increase of $2.9 million, or 61%, from revenues of $4.7 million for the three months ended September 30,
2016. The increase resulted primarily from an increase in the amount of drug substance sold to Pfizer, and drug product sold to
Brazil.
Cost of Revenues
Cost of revenues was $6.1 million for the three months ended
September 30, 2017, an increase of $1.8 million, or 43%, from cost of revenues of $4.2 million for the three months ended
September 30, 2016. The increase resulted primarily from costs related to the production of drug substance for sale to Pfizer,
and of drug product for sale to Brazil.
Research and Development Expenses, Net
Research and development expenses were $6.4 million for the
three months ended September 30, 2017, an increase of $1.3 million, or 26%, from $5.1 million for the three months ended September
30, 2016. The increase resulted from the advancement of all of our pipeline programs in the clinical trial development plan.
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 $2.8 million for the three months ended September 30, 2017, an increase of $0.8 million, or 41%, from $2.0 million
for the three months ended September 30, 2016. The increase resulted primarily from an increase of $0.3 million in sales expenses.
Financial Expenses, net
Financial expenses, net was $3.7 million for
the three months ended September 30, 2017, compared to financial expenses net of $0.6 million for the three months ended September
30, 2016. Financial expenses is comprised primarily from interest expense on convertible notes of $1.2 million for the period ended
September 30, 2017. During the three months ended September 30, 2017, we recognized an extinguishment loss of $1.3 million due
to convertible notes exchange.
Nine months ended September 30, 2017 compared to the nine
months ended September 30, 2016
Revenues
We recorded revenues of $16.8 million during the nine months
ended September 30, 2017, an increase of $9.7 million, or 136%, from revenues of $7.1 million for the nine months ended September
30, 2016. The increase resulted primarily from an increase in the amount of drug substance sold to Pfizer and drug products sold
to Brazil.
Cost of Revenues
Cost of revenues was $13.7 million for the nine months ended
September 30, 2017, an increase of $7.2 million, or 112%, from cost of revenues of $6.4 million for the nine months ended
September 30, 2016. The increase resulted primarily from costs related to the production of drug substance for sale to Pfizer,
and of drug product for sale to Brazil.
Research and Development Expenses, Net
Research and development expenses were $19.8 million for
the nine months ended September 30, 2017, an increase of $0.9 million, or 5%, from $18.9 million for the nine months ended
September 30, 2016.
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
$8.2 million for the nine months ended September 30, 2017, an increase of $2.0 million, or 32%, from $6.2 million
for the nine months ended September 30, 2016. The increase resulted primarily from an increase of $1.1 million in sales expenses.
Financial Expenses, net
Financial expenses net were $45.2 million for the nine
months ended September 30, 2017, an increase of $43.1 million, compared to financial expenses net of $2.1 million for the
nine months ended September 30, 2016. 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 comprised 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 generated 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 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 7.5% 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 7.5% 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 certain 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 certain 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.
We believe that our existing cash and cash equivalents
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.
Cash Flows
Net cash used in operations was $27.6 million
for the nine months ended September 30, 2017. The net loss for the nine months ended September 30, 2017 of $70.1 million was
partially offset by a change of $38.1 million in the fair value of convertible notes embedded derivative and increase of $8.7 million
in accounts payable. Net cash used in investing activities for the nine months ended September 30, 2017 was $1.1 million and
consisted primarily of purchases of property and equipment and an increase in restricted deposit. Net cash used in financing activities
for the nine months ended September 30, 2017 was $1.4 million and consisted primarily of cash settlement of $11.0 million
for certain conversions of our convertible notes which was partially offset by $9.5 million of net proceeds from the issuance of
our 7.5% convertible notes.
Net cash used in operations was $24.7 million
for the nine months ended September 30, 2016. The net loss for the nine months ended September 30, 2016 of $26.7 million was
further increased by an increase of $1.4 million in accounts receivable, but was partially offset by depreciation expenses
of $1.5 million and share based compensation of $765,000. Net cash used in investing activities for the nine months ended
September 30, 2016 was approximately $725,000 and consisted primarily of purchases of property and equipment.
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, alidornase alfa and OPRX-106, and the advancement of our other product candidates into anticipated later stage clinical trials.
Our future capital requirements will depend on
many other factors, including our progress in commercializing Uplyso 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 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. 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 nine months ended September 30, 2017 and September 30, 2016.
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, 2017 and September 30, 2016.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of
each of September 30, 2017 and September 30, 2016.