Item 1. Financial Statements
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41,868
|
|
|
$
|
51,163
|
|
Accounts receivable – Trade
|
|
|
4,894
|
|
|
|
1,721
|
|
Other assets
|
|
|
2,619
|
|
|
|
1,934
|
|
Inventories
|
|
|
7,959
|
|
|
|
7,833
|
|
Total current assets
|
|
$
|
57,340
|
|
|
$
|
62,651
|
|
|
|
|
|
|
|
|
|
|
DEFERRED ASSET
|
|
$
|
1,450
|
|
|
|
|
|
FUNDS IN RESPECT OF EMPLOYEE RIGHTS UPON RETIREMENT
|
|
|
1,779
|
|
|
$
|
1,887
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
6,628
|
|
|
|
7,676
|
|
Total assets
|
|
$
|
67,197
|
|
|
$
|
72,214
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES NET OF CAPITAL DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accruals:
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
4,388
|
|
|
$
|
7,521
|
|
Other
|
|
|
10,163
|
|
|
|
9,310
|
|
Convertible notes
|
|
|
|
|
|
|
5,921
|
|
Total current liabilities
|
|
$
|
14,551
|
|
|
$
|
22,752
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
47,320
|
|
|
|
46,267
|
|
Deferred revenues
|
|
|
61,780
|
|
|
|
26,851
|
|
Liability for employee rights upon retirement
|
|
|
2,386
|
|
|
|
2,586
|
|
Other long term liabilities
|
|
|
6,154
|
|
|
|
5,051
|
|
Total long term liabilities
|
|
$
|
117,640
|
|
|
$
|
80,755
|
|
Total liabilities
|
|
$
|
132,191
|
|
|
$
|
103,507
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL DEFICIENCY
|
|
|
(64,994
|
)
|
|
|
(31,293
|
)
|
Total liabilities net of capital deficiency
|
|
$
|
67,197
|
|
|
$
|
72,214
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements.
PROTALIX
BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except per share data)
(Unaudited)
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
REVENUES
|
|
$
|
7,222
|
|
|
$
|
16,773
|
|
|
$
|
663
|
|
|
$
|
7,526
|
|
COST OF REVENUES
|
|
|
(7,024
|
)
|
|
|
(13,677
|
)
|
|
|
(1,917
|
)
|
|
|
(6,066
|
)
|
GROSS PROFIT (LOSS)
|
|
|
198
|
|
|
|
3,096
|
|
|
|
(1,254
|
)
|
|
|
1,460
|
|
RESEARCH AND DEVELOPMENT EXPENSES (1)
|
|
|
(25,565
|
)
|
|
|
(22,389
|
)
|
|
|
(10,803
|
)
|
|
|
(7,118
|
)
|
Less – grants
|
|
|
1,810
|
|
|
|
2,545
|
|
|
|
732
|
|
|
|
729
|
|
RESEARCH AND DEVELOPMENT EXPENSES, NET
|
|
|
(23,755
|
)
|
|
|
(19,844
|
)
|
|
|
(10,071
|
)
|
|
|
(6,389
|
)
|
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (2)
|
|
|
(7,294
|
)
|
|
|
(8,187
|
)
|
|
|
(2,638
|
)
|
|
|
(2,836
|
)
|
OPERATING LOSS
|
|
|
(30,851
|
)
|
|
|
(24,935
|
)
|
|
|
(13,963
|
)
|
|
|
(7,765
|
)
|
FINANCIAL EXPENSES
|
|
|
(5,824
|
)
|
|
|
(8,809
|
)
|
|
|
(1,811
|
)
|
|
|
(3,680
|
)
|
FINANCIAL INCOME
|
|
|
437
|
|
|
|
1,670
|
|
|
|
230
|
|
|
|
8
|
|
LOSS FROM CHANGE IN FAIR VALUE OF
CONVERTIBLE NOTES EMBEDDED DERIVATIVE
|
|
|
|
|
|
|
(38,061
|
)
|
|
|
|
|
|
|
|
|
FINANCIAL EXPENSES, NET
|
|
|
(5,387
|
)
|
|
|
(45,200
|
)
|
|
|
(1,581
|
)
|
|
|
(3,672
|
)
|
NET LOSS FOR THE PERIOD
|
|
|
(36,238
|
)
|
|
|
(70,135
|
)
|
|
|
(15,544
|
)
|
|
|
(11,437
|
)
|
NET LOSS PER SHARE OF COMMON STOCK
BASIC AND DILUTED
|
|
$
|
(0.25
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.09
|
)
|
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK USED IN COMPUTING
LOSS PER SHARE – BASIC AND
DILUTED
|
|
|
146,752,355
|
|
|
|
128,223,722
|
|
|
|
148,187,513
|
|
|
|
132,549,001
|
|
(1) Includes share-based compensation
|
|
$
|
54
|
|
|
$
|
163
|
|
|
$
|
14
|
|
|
$
|
43
|
|
(2) Includes share-based compensation
|
|
$
|
42
|
|
|
$
|
128
|
|
|
$
|
8
|
|
|
$
|
32
|
|
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)
(Unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid–In
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock (1)
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
Number of
shares
|
|
|
Amount
|
|
Balance at December 31, 2016
|
|
|
124,134,085
|
|
|
$
|
124
|
|
|
$
|
202,575
|
|
|
$
|
(212,656
|
)
|
|
$
|
(9,957
|
)
|
Changes during the 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 for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,135
|
)
|
|
|
(70,135
|
)
|
Balance at September 30, 2017
|
|
|
133,845,320
|
|
|
$
|
134
|
|
|
$
|
256,586
|
|
|
$
|
(282,791
|
)
|
|
$
|
(26,071
|
)
|
Balance at December 31, 2017
|
|
|
143,728,797
|
|
|
$
|
144
|
|
|
$
|
266,495
|
|
|
$
|
(297,932
|
)
|
|
$
|
(31,293
|
)
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,238
|
)
|
|
|
(36,238
|
)
|
Balance at September 30, 2018
|
|
|
148,301,238
|
|
|
$
|
148
|
|
|
$
|
269,028
|
|
|
$
|
(334,170
|
)
|
|
$
|
(64,994
|
)
|
|
*
|
Represents an amount less than $1.
|
|
(1)
|
Common Stock, $0.001 par value; Authorized – as of September 30, 2018 and 2017 - 250,000,000.
|
The accompanying
notes are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(36,238
|
)
|
|
$
|
(70,135
|
)
|
Adjustments required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
96
|
|
|
|
291
|
|
Depreciation
|
|
|
1,257
|
|
|
|
1,469
|
|
Financial (income) expenses, net (mainly exchange differences)
|
|
|
(37
|
)
|
|
|
13
|
|
Changes in accrued liability for employee rights upon retirement
|
|
|
(86
|
)
|
|
|
54
|
|
Gain on amounts funded in respect of employee rights upon retirement
|
|
|
(45
|
)
|
|
|
(21
|
)
|
Net loss in connection with conversions of convertible notes
|
|
|
204
|
|
|
|
587
|
|
Change in fair value of convertible notes embedded derivative
|
|
|
|
|
|
|
38,061
|
|
Amortization of debt issuance costs and debt discount
|
|
|
1,916
|
|
|
|
1,710
|
|
Issuance of shares for interest payment in connection with conversions of convertible notes
|
|
|
205
|
|
|
|
1,111
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase (decrease) in deferred revenues
|
|
|
34,929
|
|
|
|
(837
|
)
|
Increase in deferred asset
|
|
|
(1,450
|
)
|
|
|
|
|
Increase in accounts receivable and other assets
|
|
|
(3,661
|
)
|
|
|
(6,467
|
)
|
Increase in inventories
|
|
|
(126
|
)
|
|
|
(2,234
|
)
|
Increase (decrease) in accounts payable and accruals
|
|
|
(1,805
|
)
|
|
|
8,698
|
|
Increase in other long term liabilities
|
|
|
1,103
|
|
|
|
|
|
Net cash used in continuing operations
|
|
|
(3,738
|
)
|
|
|
(27,700
|
)
|
Net cash provided by discontinued operations
|
|
|
|
|
|
|
116
|
|
Net cash used in operating activities
|
|
$
|
(3,738
|
)
|
|
$
|
(27,584
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
(498
|
)
|
|
$
|
(681
|
)
|
Increase in restricted deposit
|
|
|
(247
|
)
|
|
|
(336
|
)
|
Amounts funded in respect of employee rights upon retirement, net
|
|
|
70
|
|
|
|
(68
|
)
|
Net cash used in investing activities
|
|
$
|
(675
|
)
|
|
$
|
(1,085
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net payment for convertible notes
|
|
|
(4,752
|
)
|
|
|
(10,961
|
)
|
Net proceeds from issuance of convertible notes
|
|
|
|
|
|
|
9,542
|
|
Net cash used in financing activities
|
|
|
(4,752
|
)
|
|
|
(1,419
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
$
|
(130
|
)
|
|
$
|
289
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(9,295
|
)
|
|
|
(29,799
|
)
|
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
|
|
|
51,163
|
|
|
|
63,281
|
|
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
41,868
|
|
|
$
|
33,482
|
|
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, 2018
|
|
|
September 30, 2017
|
|
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
237
|
|
|
$
|
666
|
|
Convertible notes conversions
|
|
$
|
2,236
|
|
|
$
|
7,668
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE ON CASH FLOWS
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,411
|
|
|
$
|
2,613
|
|
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, 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 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 Farmaceutici S.p.A. (“Chiesi”) entered into an Ex-US license agreement (the “Chiesi Ex-U.S. 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 U.S.
Agreement”), with respect to the development and commercialization of pegunigalsidase alfa in the United States.
Under each of the Chiesi
Ex-U.S. Agreement and the Chiesi U.S. Agreement, Chiesi made an upfront payment to Protalix Ltd. of $25.0 million in
connection with the execution of the agreement. In addition, under the Chiesi Ex-U.S. 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 U.S. Agreement, Protalix Ltd.
is
entitled to payments of up to a maximum of $20.0
million
to cover development costs for pegunilgalsidase 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.
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-U.S. 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 U.S. Agreement, Chiesi is required to
make tiered payments of 15% to 40% of its net sales, depending on the amount of annual sales outside of the United States, as consideration
for product supply.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
Since its approval by the FDA,
taliglucerase alfa has been marketed by Pfizer Inc. (“Pfizer”), in accordance with the exclusive license and supply
agreement 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 with Pfizer (the “Amended Pfizer Agreement”)
which amends and restates the Pfizer Agreement in its entirety. Pursuant to the Amended Pfizer Agreement, the Company sold to
Pfizer its share in the collaboration created under the Pfizer Agreement for the commercialization of Elelyso in exchange for
a cash payment equal to $36.0 million. As part of the sale, the Company agreed to transfer its rights to Elelyso in Israel
to Pfizer while gaining full rights to it in Brazil. Under the Amended Pfizer Agreement, Pfizer is entitled to all of the revenues,
and is responsible for 100% of expenses globally for Elelyso, excluding Brazil where the Company is responsible for all expenses
and retains all revenues.
On June 18, 2013, the Company entered
into a Supply and Technology Transfer Agreement (the “Brazil Agreement”) with Fundação Oswaldo Cruz (“Fiocruz”),
an arm of the Brazilian Ministry of Health (the “Brazilian MoH”), for taliglucerase alfa. Fiocruz’s purchases
of alfataliglicerase to date have been significantly below certain agreed upon purchase milestones and, accordingly, the Company
has the right to terminate the Brazil Agreement. Notwithstanding the 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. Approximately 10% of adult Gaucher patients in Brazil are currently treated with alfataliglicerase. The Company is discussing
with Fiocruz potential actions that Fiocruz may take to comply with its purchase obligations and, based on such discussions, the
Company will determine what it believes to be the course of action that is in the best interest of the Company.
In 2017, the Company received a
purchase order from the Brazilian MoH for the purchase of alfataliglicerase for the treatment of Gaucher patients in Brazil for
consideration of approximately $24.3 million. Shipments started in June 2017. The Company recorded revenues of $7.1 million
for sales of alfataliglicerase to Fiocruz in 2017, and $2.6 million during the nine months ended September 30, 2018.
Based on its current cash resources
and commitments, the Company believes it will be able to maintain its current planned development activities and the corresponding
level of expenditures for at least 12 months from the date of approval of the September 30, 2018 financial statements, although
no assurance can be given that it will not need additional funds prior to such time. If there are unexpected increases in general
and administrative expenses or research and development expenses, the Company may need to seek additional financing.
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes
required by GAAP for annual financial statements. In the opinion of management, all adjustments (of a normal recurring nature)
considered necessary for a fair statement of the results for the interim periods presented have been included. Operating results
for the interim period are not necessarily indicative of the results that may be expected for the full year.
These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements in the Annual Report on Form 10-K for
the year ended December 31, 2017, filed by the Company with the Commission. The comparative balance sheet at December 31, 2017
has been derived from the audited financial statements at that date.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
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 76,195,921 and 73,310,911 shares of Common Stock underlying outstanding options
and restricted shares of Common Stock and shares of Common Stock issuable upon conversion of the convertible notes for the nine
months ended September 30, 2017 and 2018, respectively, and 80,696,070 and 73,280,977 shares of Common Stock for the three
months ended September 30, 2017 and 2018, respectively, because the effect would be anti-dilutive.
|
1.
|
Revenues from supply agreements
|
The Company recognizes revenues from supply agreements
and from selling products when control is transferred to the customer and collectability is probable.
|
2.
|
Revenues from Chiesi Agreements
|
As Chiesi is obligated to acquire pegunigalsidase alfa
from the Company and the development services are not considered distinct, development and manufacturing of a product to be commercialized
by Chiesi is viewed as a single performance obligation under each of the agreements. Since there is only one performance obligation,
all payments received from Chiesi prior to the satisfaction of the Company’s obligation will be deferred. Therefore, the
upfront payments and future research and development reimbursement payments and any potential additional development milestone
payments under each agreement are contract liabilities and will be deferred until the commencement of commercial manufacturing
in the applicable territories.
|
e.
|
Recently adopted standards
|
In May 2014, the
Financial
Accounting Standards Board (“FASB”)
issued guidance on revenues from contracts with customers that will supersede
most current revenue recognition guidance, including industry-specific guidance. The underlying principle is to recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity
expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to
determine when and how revenue is recognized. Other major provisions require capitalization of certain contracts costs, consideration
of the time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies
are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount timing and
uncertainty of revenues and cash flows arising from an entity’s contracts with customers. The guidance is effective for the
interim and annual periods beginning on or after December 15, 2017. On January 1, 2018, the Company adopted the new accounting
standard, ASC 606, Revenue from Contracts with Customers, and all the related amendments, using the modified retrospective method.
The implementation of this Accounting Standards Update (ASU) did not have a material impact on the Company’s consolidated
financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
In January 2016, the FASB issued ASU, No. 2016-01,
Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance affects
the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements
of financial instruments. The guidance is effective for annual reporting periods beginning after December 15, 2017. The implementation
of this ASU did not have a material impact on the Company’s consolidated financial statements.
NOTE 2 - INVENTORIES
The Company’s inventory at September 30,
2018 and December 31, 2017 consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(
U.S. dollars in thousands)
|
|
Raw materials
|
|
$
|
3,201
|
|
|
$
|
3,838
|
|
Work in progress
|
|
|
276
|
|
|
|
485
|
|
Finished goods
|
|
|
4,482
|
|
|
|
3,510
|
|
Total inventory
|
|
$
|
7,959
|
|
|
$
|
7,833
|
|
NOTE 3 - FAIR VALUE MEASUREMENT
The Company measures fair value and discloses fair
value measurements for financial assets and liabilities. Fair value is based on the price that would be received from the sale
of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
The accounting standard establishes a fair value
hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described
below:
Level 1: Quoted prices (unadjusted) in active markets
that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level
1 inputs.
Level 2: Observable prices that are based on inputs
not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little
or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes
valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible
and considers counterparty credit risk in its assessment of fair value.
The fair value of the financial instruments included
in the working capital of the Company is usually identical or close to their carrying value.
The fair value of the convertible notes derivative
is based on Level 3 measurement.
The fair value of the remaining $58.0 million
in aggregate principal amount of the Company’s outstanding 7.50% secured convertible promissory notes due 2021 (the “2021
Notes”) is approximately $78.0 million, based on a Level 3 measurement.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - FAIR VALUE MEASUREMENT
(continued)
:
The
Company prepared a valuation of the fair value of the
Company’s
2021
Notes (a Level 3 valuation) as of September
30, 2018. 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)
|
|
|
0.73
|
|
Expected term (years)
|
|
|
3.13
|
|
Risk free rate
|
|
|
2.87%
|
|
Volatility
|
|
|
75.56%
|
|
Yield
|
|
|
13.50%
|
|
NOTE 4 - CONVERTIBLE NOTES
All of our outstanding convertible notes are accounted
for using the guidance set forth in the FASB Accounting Standards Codification (ASC) 815 which requires that the Company determine
whether the embedded conversion option must be separated and accounted for separately. ASC 470-20, regarding debt 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
2021 Notes were accounted for partially as liability and equity components of the instrument and partially as a debt host contract
with an embedded derivative resulting from the conversion feature. During the year ended December
31,
2017, the embedded derivative was reclassified to additional paid in capital.
Issuance costs regarding the issuance of the 2021
Notes are amortized using the effective interest rate.
During the nine months ended September 30, 2018,
note holders converted $1.1 million aggregate principal amount of the 2021 Notes into a total of 1,456,354 shares of Common
Stock, and cash payments of approximately $14,439, in the aggregate. An additional 14,860 shares of Common Stock were issued after
September 30, 2018 in connection with the make-whole premium associated with certain of the converted notes that were converted
during the third quarter of 2018. In addition, in June 2018, the Company exchanged $3.42 million aggregate principal amount
of the Company’s outstanding 4.50% convertible promissory notes due 2018 (the “2018 Notes”) for 2,613,636 shares
of Common Stock and approximately $2.2 million in cash and delivered the necessary funds under the indenture governing the
2018 Notes, which was $2.5 million. On September 15, 2018, the 2018 Notes matured and have been paid in full.
As of September 30, 2018, a
total of $58.0 million aggregate principal amount of the 2021 Notes were outstanding. In addition, as of September 30,
2018, none of the 2018 Notes were outstanding.
NOTE 5 - REVENUES
The following table summarizes the
Company’s disaggregation of revenues:
|
|
Nine Months Ended
September 30,
|
|
(U.S. dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
Pfizer
|
|
$
|
4,649
|
|
|
$
|
10,198
|
|
Brazil
|
|
$
|
2,573
|
|
|
$
|
6,575
|
|
|
|
$
|
7,222
|
|
|
$
|
16,773
|
|
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - STOCK TRANSACTIONS
On September 13, 2018,
the Company’s compensation committee approved the grant of 10-year options to purchase, in the aggregate, 6,360,000
shares of Common Stock, of which options to purchase 4,000,000 shares of Common Stock were granted to the Company’s
executive officers and options to purchase 2,360,000 shares of Common Stock were granted to other employees with an exercise
price equal to $0.56 per share and $0.51 per share, respectively, under the Company’s 2006 Employee Stock Incentive
Plan, as amended (the “Plan”). The options vest over a four-year period in 16 equal quarterly increments. Vesting
of the options granted to the executive officers 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
$1.9 million based on the following weighted average assumptions: share price equal to $0.51; dividend yield of 0% for
all years; expected volatility of 64.3%; risk-free interest rates of 2.9%; and expected life of six years.
|
Item 2.
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
You should read the following discussion
and analysis of our financial condition and results of operations together with our financial statements and the consolidated financial
statements and the related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the year ended
December
31, 2017. Some of the information contained in this discussion and analysis, particularly with respect to
our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.
You should read “Risk Factors” in our Annual Report on Form 10-K for the year ended December
31, 2017 for
a discussion of important factors that could cause actual results to differ materially from the results described in or implied
by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company focused on the development
and commercialization of recombinant therapeutic proteins based on our proprietary ProCellEx
®
protein expression
system. We developed our first commercial drug product, Elelyso
®
, using our ProCellEx system and we are now focused
on utilizing the system to develop a pipeline of proprietary, clinically superior versions of recombinant therapeutic proteins
that primarily target large, established pharmaceutical markets and that in most cases rely upon known biological mechanisms of
action. With our experience to date, we believe ProCellEx will enable us to develop additional proprietary recombinant proteins
that are therapeutically superior to existing recombinant proteins currently marketed for the same indications including applying
the unique properties of our ProCellEx system for the oral delivery of therapeutic proteins.
On
October
19, 2017, Protalix Ltd., our wholly-owned subsidiary,
and Chiesi entered into the Chiesi Agreement pursuant to which Chiesi was granted an exclusive license for all markets outside
of the United States to commercialize pegunigalsidase alfa.
Pegunigalsidase alfa is our chemically modified version of the
recombinant protein alpha-Galactosidase-A protein that is currently being evaluated in phase III clinical trials for the treatment
of Fabry disease
. Under the terms and conditions of the Chiesi Agreement,
Protalix Ltd. retained the right to commercialize pegunigalsidase alfa in the United States. Under the Chiesi Agreement, Chiesi
made an upfront payment to Protalix Ltd. of $25.0
million
in connection with the execution of the agreement and Protalix Ltd. is entitled to additional payments of up to $25.0
million
in development costs, capped at $10.0
million per year. Protalix
Ltd. is also eligible to receive an additional up to $320.0
million,
in the aggregate, in regulatory and commercial milestone payments. Protalix Ltd. agreed to manufacture all of the PRX-102 needed
for all purposes under the agreement, subject to certain exceptions, and Chiesi will purchase pegunigalsidase alfa from Protalix,
subject to certain terms and conditions. Chiesi is required to make tiered payments of 15% to 35% of its net sales, depending on
the amount of annual sales, as consideration for the supply of pegunigalsidase alfa.
On
July 23, 2018, Protalix Ltd. entered into an Exclusive License and Supply Agreement with Chiesi, or the Chiesi U.S. Agreement,
with respect to the development and commercialization of pegunigalsidase alfa in the United States. Under the terms of the Chiesi
U.S. Agreement, Protalix Ltd. granted to Chiesi exclusive licensing rights for the commercialization of PRX-102 in the United States.
Protalix Ltd. is entitled to an upfront, non-refundable, non-creditable payment of $25.0 million from Chiesi and additional payments
of up to a maximum of $20.0 million to cover development costs for PRX-102, subject to a maximum of $7.5 million per year. Protalix
Ltd. is also eligible to receive an additional up to a maximum of $760.0
million,
in the aggregate, in regulatory and commercial milestone payments. Chiesi will also make tiered payments of 15% to 40% of its net
sales to Protalix Ltd., depending on the amount of annual sales, subject to certain terms and conditions, as consideration for
product supply.
In December 2017, the European Commission granted Orphan Drug
Designation for pegunigalsidase alfa for the treatment of Fabry disease. The designation was granted after the European Medicine
Agency’s Committee for Orphan Medicinal Products, or the COMP, issued a positive opinion supporting the designation noting
that we had established that there was medically plausible evidence that pegunigalsidase alfa will provide a significant benefit
over existing approved therapies in the European Union for the treatment of Fabry disease. The COMP cited clinical and non-clinical
justifications we provided to establish the significant benefit of pegunigalsidase alfa, noting that the COMP considered the justifications
to constitute a clinically relevant advantage. Orphan Drug Designation for pegunigalsidase alfa qualifies Protalix Ltd. for access
to a centralized marketing authorization procedure, including applications for inspections and for protocol assistance. If the
orphan drug designation is maintained at the time pegunigalsidase alfa is approved for marketing in the European Union, if at all,
we expect that PRX-102 will benefit from 10 years of market exclusivity within the European Union. The market exclusivity will
not have any effect on Fabry disease treatments already approved at that time.
In January 2018, the FDA granted Fast Track designation to PRX-102.
Fast Track designation is a process designed to facilitate the development and expedite the review of drugs and vaccines for serious
conditions that fill an unmet medical need.
On May 1, 2012, the FDA approved for sale our first commercial
product, taliglucerase alfa for injection, an ERT for the long-term treatment of adult patients with a confirmed diagnosis of type
1 Gaucher disease. Subsequently, taliglucerase alfa was approved for marketing by the regulatory authorities of other countries.
Taliglucerase alfa is marketed under the name alfataliglicerase in Brazil and certain other Latin American countries, and under
the name Elelyso in other territories.
Since
its approval by the FDA, taliglucerase alfa has been marketed by Pfizer, as provided in the Pfizer Agreement. In
October
2015, we entered into the Amended Pfizer Agreement which amends and restates the Pfizer Agreement in its entirety. Pursuant to
the Amended Pfizer Agreement, we sold to Pfizer our share in the collaboration created under the initial Pfizer Agreement for the
commercialization of Elelyso in exchange for a cash payment equal to $36.0 million. As part of the sale, we agreed to transfer
our rights to Elelyso in Israel to Pfizer, while gaining full rights to Elelyso in Brazil. We will continue to manufacture drug
substance for Pfizer, subject to certain terms and conditions. Under the Amended Pfizer Agreement, Pfizer is responsible for 100%
of expenses, and entitled to all revenues globally for Elelyso, excluding Brazil, where we are responsible for all expenses and
retain all revenues.
For the first 10-year period after the execution of the Amended
Pfizer Agreement, we have agreed to sell drug substance to Pfizer for the production of Elelyso, and Pfizer maintains the right
to extend the supply period for up to two additional 30-month periods subject to certain terms and conditions. Any failure to comply
with our supply commitments may subject us to substantial financial penalties, which will have a material adverse effect on our
business, results of operations and financial condition. The Amended Pfizer Agreement also includes customary provisions regarding
cooperation for regulatory matters, patent enforcement, termination, indemnification and insurance requirements.
On
June
18, 2013, we entered into the Brazil Agreement with
Fiocruz,
an arm of the Brazilian MoH,
for taliglucerase alfa.
Fiocruz’s
purchases of
alfataliglicerase
to date have been significantly
below certain agreed upon purchase milestones and, accordingly, we have the right to terminate the Brazil Agreement. Notwithstanding
our termination right, we are, at this time, continuing to supply
alfataliglicerase
to Fiocruz under the Brazil Agreement, and patients continue to be treated with
alfataliglicerase
in Brazil. We are discussing with Fiocruz potential actions that Fiocruz may take to comply with its purchase obligations and,
based on such discussions, we will determine what we believe to be the course of action that is in our best interest.
We are developing an innovative product pipeline using our ProCellEx
protein expression system. Our product pipeline currently includes, among other candidates:
(1) pegunigalsidase alfa, or PRX-102, a therapeutic protein
candidate for the treatment of Fabry disease, a rare, genetic lysosomal disorder in humans, currently in an ongoing phase III clinical
trial.
(2) alidornase alfa, or PRX-110, a proprietary plant cell recombinant
human Deoxyribonuclease 1 under development for the treatment of Cystic Fibrosis, or CF, to be administered by inhalation. We recently
completed a phase IIa efficacy and safety study of alidornase alfa for the treatment of CF.
(3)
OPRX-106,
our oral antiTNF product candidate
which is being developed
as
an orally-delivered anti-inflammatory treatment using plant cells as a natural capsule for the expressed protein. We
released final data generated in our phase II clinical trial of OPRX-106 for the treatment of ulcerative colitis in March 2018
.
Additional data was released in June 2018.
We have licensed the rights to commercialize taliglucerase alfa
worldwide (other than Brazil) to Pfizer, and the rights to commercialize pegunigalsidase alfa worldwide to Chiesi. Otherwise, we
hold the worldwide commercialization rights to our other proprietary development candidates. In addition, we continuously evaluate
potential strategic marketing partnerships as well as collaboration programs with biotechnology and pharmaceutical companies and
academic research institutes.
Critical Accounting Policies
Our significant accounting policies are more fully described
in Note 1 to our consolidated financial statements appearing in this Quarterly Report. There have been no material changes
to our significant accounting policies since we filed our Annual Report on Form 10-K for the year ended December 31, 2017.
The discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we prepared in accordance with U.S. generally accepted accounting principles.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well
as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments,
including those described in greater detail below. We base our estimates on historical experience and on various other factors
that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
Convertible Notes
Our 2021 Notes are accounted for using the guidance set forth
in FASB ASC 815 which requires that we determine whether the embedded conversion option must be separated and accounted for separately.
ASC 470-20, regarding debt with conversion and other options, requires the issuer of a convertible debt instrument that may be
settled in cash upon conversion to separately account for the liability (debt) and equity (conversion option) components of the
instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate.
Our
2021 Notes
were accounted for partially as liability and equity
components of the instrument and partially as a debt host contract with an embedded derivative resulting from the conversion feature.
During the year ended December
31, 2017, the embedded derivative
was reclassified to additional paid in capital.
Issuance costs regarding the issuance of the 2021 Notes are
amortized using the effective interest rate.
During the nine months ended September 30, 2018, note holders
converted $1.1 million aggregate principal amount of the 2021 Notes into a total of 1,456,354 shares of our common stock,
and cash payments of approximately $14,439, in the aggregate. An additional 14,860 shares of common stock were issued after September
30, 2018 in connection with the make-whole premium associated with certain of the converted notes that were converted during the
third quarter of 2018. On September 15, 2018, our 2018 Notes matured and the outstanding principal amount for such notes was paid
in full.
As of September 30, 2018, a total of
$58.0 million aggregate principal amount of the
2021 Notes
were outstanding, and no 2018 Notes were outstanding.
Results of Operations
Three months ended September 30, 2018 compared to the
three months ended September 30, 2017
Revenues
We recorded revenues of $663,000 during the three months ended
September 30, 2018, a decrease of $6.9 million from revenues of $7.5 million for the three months ended September 30,
2017. The decrease resulted from decreased sales of drug substance to Pfizer and drug product to Brazil.
Cost of Revenues
Cost of revenues was $1.9 million for the three months
ended September 30, 2018, a decrease of $4.1 million, from cost of revenues of $6.1 million for the three months ended
September 30, 2017. The decrease resulted primarily from decreased sales of drug substance to Pfizer and drug product to Brazil.
Research and Development Expenses, Net
Research and development expenses were $10.1 million for
the three months ended September 30, 2018, an increase of $3.6 million from $6.4 million for the three months ended
September 30, 2017. The increase resulted primarily from an increase in clinical trial activity during 2018.
We expect research and development expenses
for our various development programs to continue to be our primary expense for the foreseeable future.
Selling, General and Administrative Expenses
Selling, general and administrative expenses
were $2.6 million for the three months ended September 30, 2018, a decrease of $198,000, or 7%, from $2.8 million
for the three months ended September 30, 2017. The decrease resulted primarily from a decrease in sales expenses.
Financial Expenses, net
Financial expenses, net were $1.6 million for the three
months ended September 30, 2018, a decrease of $2.1 million compared to financial expenses, net of $3.7 million
for the three months ended September 30, 2017. Financial expenses are comprised primarily from interest expense on our outstanding
convertible notes of $1.2 million for the period ended September 30, 2018.
Nine months ended September 30, 2018 compared to the nine
months ended September 30, 2017
Revenues
We recorded revenues of $7.2 million during the nine months
ended September 30, 2018, a decrease of $9.6 million, or 57%, from revenues of $16.8 million for the nine months ended
September 30, 2017. The decrease resulted from a decrease of $5.6 million in sales of drug substance to Pfizer and $4.0 million
in sales of drug product to Brazil.
Cost of Revenues
Cost of revenues was $7.0 million for the nine months ended
September 30, 2018, a decrease of $6.7 million, or 49%, from cost of revenues of $13.7 million for the nine months ended
September 30, 2017. The decrease resulted primarily from costs related to the production of drug substance sold to Pfizer and drug
product sold to Brazil.
Research and Development Expenses, Net
Research and development expenses was $23.8 million for
the nine months ended September 30, 2018, an increase of $4.0 million, or 20%, from $19.8 million for the nine months
ended September 30, 2017. The increase resulted primarily from an increase in clinical trial activity during 2018.
We expect research and development expenses for our various
development programs to continue to be our primary expense for the foreseeable future.
Selling, General and Administrative Expenses
Selling, general and administrative expenses
were $7.3 million for the nine months ended September 30, 2018, a decrease of $893,000, or 11%, from $8.2 million for
the nine months ended September 30, 2017. The decrease resulted primarily from a decrease in sales expenses.
Financial Expenses, net
Financial expenses, net were $5.4 million
for the nine months ended September 30, 2018, compared to financial expenses net of $45.2 million for the nine months
ended September 30, 2017. During the nine months ended September 30, 2017, financial expenses included a charge of $38.1 million
as a result of the re-measurement of the fair value of the 7.5% convertible notes embedded derivative. In addition, financial expenses
are comprised primarily from interest expense on our outstanding convertible notes.
Liquidity and Capital Resources
Sources of Liquidity
As a result of our significant research and
development expenditures and the lack of significant revenue from sales of taliglucerase alfa, we have incurred operating losses
from our continuing operations since our inception. To date, we have funded our operations primarily with proceeds equal to $31.3 million
from the sale of shares of convertible preferred and ordinary shares of Protalix Ltd., and an additional $14.1 million in
connection with the exercise of warrants issued in connection with the sale of such shares, through December 31, 2008. In addition,
on October 25, 2007, we generated gross proceeds of $50.0 million in connection with an underwritten public offering
of our common stock and on each of March 23, 2011 and February 22, 2012, we generated gross proceeds of $22.0 million
and $27.2 million, respectively, in connection with underwritten public offerings of our common stock.
In addition to the foregoing, on September 18, 2013, we
completed a private placement of $69.0 million in aggregate principal amount of 4.50% convertible notes due 2018, including
$9.0 million aggregate principal amount of the of 4.50% convertible notes related to the offering’s initial purchaser’s
over-allotment option, which was exercised in full. In December 2016, we completed a private placement of $22.5 million in
aggregate principal amount of 7.50% convertible notes due 2021. Finally, on July 25, 2017, we completed a private placement
of an additional $10.0 million in aggregate principal amount of 7.50% convertible notes due 2021.
Pfizer
paid Protalix Ltd. $60.0
million as an upfront payment in
connection with the execution of the Pfizer Agreement and subsequently paid to Protalix Ltd. an additional $5.0
million
upon Protalix Ltd.’s meeting a milestone. Protalix Ltd. also received a milestone payment of $25.0
million
in
connection with the FDA’s approval of taliglucerase alfa in May 2012.
Pfizer has also paid Protalix Ltd. $8.3 million
in connection with the successful achievement of milestones under a clinical development agreement between Pfizer and Protalix
Ltd. In connection with the execution of the Amended Pfizer Agreement, we received a $36.0 million payment from Pfizer, and
Pfizer purchased 5,649,079 shares of our common stock for $10.0 million.
In
the fourth quarter of 2017, Chiesi made an upfront payment to Protalix Ltd. of $25.0
million
in connection with the execution of the Chiesi Ex-U.S. Agreement and in the third quarter of 2018, Chiesi made an upfront payment
to Protalix Ltd. of $25.0
million in connection with the execution
of the Chiesi U.S. Agreement.
Cash Flows
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 $36.2 million was partially offset by an increase of $34.9 million in deferred revenues representing an upfront
payment and certain expense reimbursements actually received from Chiesi in connection with our license agreements with
Chiesi which, according to revenue recognition rules, were deferred and not recognized during the period in which the
payments were received. 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.
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 2021 Notes.
Future Funding Requirements
We expect to continue to incur significant expenditures in the
near future, including significant research and development expenses related primarily to the clinical trials of pegunigalsidase
alfa. We believe that our existing cash and cash equivalents and commitments will be sufficient for at least 12 months. We have
based this estimate on assumptions that are subject to change and may prove to be wrong, and we may be required to use our available
capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development
and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating
expenditures associated with our current and anticipated clinical trials.
Our future capital requirements will depend
on many other factors, including our progress in commercializing
alfataliglicerase
in Brazil, the progress and results of our clinical trials, particularly our clinical trials of pegunigalsidase alfa, the duration
and cost of discovery and preclinical development and laboratory testing and clinical trials for our product candidates, conversions
of our outstanding 2021 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 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 our agreements with Chiesi. 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, 2018 and September 30, 2017.
Currency fluctuations could affect us through
increased or decreased acquisition costs for certain goods and services. We do not believe currency fluctuations have had a material
effect on our results of operations during the nine months ended September 30, 2018 and September 30, 2017.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
as of each of September 30, 2018 and September 30, 2017.