Item 1. Financial Statements
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(U.S. dollars in thousands)
|
|
June
30, 2019
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,096
|
|
|
$
|
37,808
|
|
Accounts receivable – Trade
|
|
|
7,256
|
|
|
|
4,729
|
|
Other assets
|
|
|
2,248
|
|
|
|
1,877
|
|
Inventories
|
|
|
6,998
|
|
|
|
8,569
|
|
Total current assets
|
|
$
|
41,598
|
|
|
$
|
52,983
|
|
|
|
|
|
|
|
|
|
|
FUNDS IN RESPECT OF EMPLOYEE RIGHTS UPON RETIREMENT
|
|
$
|
1,871
|
|
|
$
|
1,758
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
5,917
|
|
|
|
6,390
|
|
OPERATING LEASE RIGHT OF USE ASSETS
|
|
|
5,856
|
|
|
|
-
|
|
Total assets
|
|
$
|
55,242
|
|
|
$
|
61,131
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES NET OF CAPITAL DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accruals:
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
6,728
|
|
|
$
|
5,211
|
|
Other
|
|
|
10,496
|
|
|
|
10,274
|
|
Operating lease liabilities
|
|
|
1,227
|
|
|
|
-
|
|
Contracts liability
|
|
|
7,542
|
|
|
|
9,868
|
|
Total current liabilities
|
|
$
|
25,993
|
|
|
$
|
25,353
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
$
|
49,401
|
|
|
$
|
47,966
|
|
Contracts liability
|
|
|
34,911
|
|
|
|
33,027
|
|
Liability for employee rights upon retirement
|
|
|
2,508
|
|
|
|
2,374
|
|
Operating lease liabilities
|
|
|
4,566
|
|
|
|
-
|
|
Other long term liabilities
|
|
|
5,348
|
|
|
|
5,292
|
|
Total long term liabilities
|
|
$
|
96,734
|
|
|
$
|
88,659
|
|
Total liabilities
|
|
$
|
122,727
|
|
|
$
|
114,012
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL DEFICIENCY
|
|
$
|
(67,485
|
)
|
|
$
|
(52,881
|
)
|
Total liabilities net of capital deficiency
|
|
$
|
55,242
|
|
|
$
|
61,131
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements.
PROTALIX
BIOTHERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars
in thousands, except per share data)
(Unaudited)
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
REVENUES FROM SELLING GOODS
|
|
$
|
6,960
|
|
|
$
|
6,559
|
|
|
$
|
3,430
|
|
|
$
|
2,006
|
|
REVENUES FROM LICENSE AND R&D SERVICES
|
|
|
15,726
|
|
|
|
4,993
|
|
|
|
8,817
|
|
|
|
2,832
|
|
COST OF GOODS SOLD
|
|
|
(4,740
|
)
|
|
|
(5,107
|
)
|
|
|
(2,695
|
)
|
|
|
(2,183
|
)
|
RESEARCH AND DEVELOPMENT EXPENSES (1)
|
|
|
(25,024
|
)
|
|
|
(14,762
|
)
|
|
|
(13,323
|
)
|
|
|
(7,476
|
)
|
Less - grants
|
|
|
3
|
|
|
|
1,078
|
|
|
|
|
|
|
|
235
|
|
RESEARCH AND DEVELOPMENT EXPENSES, NET
|
|
|
(25,021
|
)
|
|
|
(13,684
|
)
|
|
|
(13,323
|
)
|
|
|
(7,241
|
)
|
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (2)
|
|
|
(4,298
|
)
|
|
|
(4,656
|
)
|
|
|
(2,068
|
)
|
|
|
(2,158
|
)
|
OPERATING LOSS
|
|
|
(11,373
|
)
|
|
|
(11,895
|
)
|
|
|
(5,839
|
)
|
|
|
(6,744
|
)
|
FINANCIAL EXPENSES
|
|
|
(3,827
|
)
|
|
|
(4,013
|
)
|
|
|
(1,907
|
)
|
|
|
(1,793
|
)
|
FINANCIAL INCOME
|
|
|
193
|
|
|
|
207
|
|
|
|
3
|
|
|
|
75
|
|
FINANCIAL EXPENSES, NET
|
|
|
(3,634
|
)
|
|
|
(3,806
|
)
|
|
|
(1,904
|
)
|
|
|
(1,718
|
)
|
NET LOSS FOR THE PERIOD
|
|
$
|
(15,007
|
)
|
|
$
|
(15,701
|
)
|
|
$
|
(7,743
|
)
|
|
$
|
(8,462
|
)
|
NET
LOSS PER SHARE
OF COMMON
STOCK-BASIC AND
DILUTED
|
|
$
|
(0.10
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING LOSS PER
SHARE – BASIC AND DILUTED
|
|
|
148,382,299
|
|
|
|
145,985,445
|
|
|
|
148,382,299
|
|
|
|
146,644,450
|
|
(1) Includes share-based compensation
|
|
$
|
316
|
|
|
$
|
40
|
|
|
$
|
138
|
|
|
$
|
(2
|
)
|
(2) Includes share-based compensation
|
|
$
|
87
|
|
|
$
|
34
|
|
|
$
|
(25
|
)
|
|
$
|
14
|
|
The accompanying
notes are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN
CAPITAL DEFICIENCY
(U.S. dollars in thousands, except
per share data)
(Unaudited)
|
|
Common
|
|
|
Common
|
|
|
Additional
Paid–In
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock (1)
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
Number of
Shares
|
|
|
Amount
|
|
Balance at January 1, 2018
|
|
|
143,728,797
|
|
|
$
|
144
|
|
|
$
|
266,495
|
|
|
$
|
(296,096
|
)
|
|
$
|
(29,457
|
)
|
Changes during the six-month period ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
58
|
|
Share-based compensation related to restricted stock award
|
|
|
29,898
|
|
|
|
*
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Convertible notes conversions
|
|
|
1,811,260
|
|
|
|
2
|
|
|
|
1,190
|
|
|
|
|
|
|
|
1,192
|
|
Convertible notes exchange
|
|
|
2,613,636
|
|
|
|
2
|
|
|
|
1,148
|
|
|
|
|
|
|
|
1,150
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,701
|
)
|
|
|
(15,701
|
)
|
Balance at June 30, 2018
|
|
|
148,183,591
|
|
|
$
|
148
|
|
|
$
|
268,907
|
|
|
$
|
(311,797
|
)
|
|
$
|
(42,742
|
)
|
Balance at January
1, 2019
|
|
|
148,382,299
|
|
|
$
|
148
|
|
|
$
|
269,524
|
|
|
$
|
(322,553
|
)
|
|
$
|
(52,881
|
)
|
Changes during the six-month period ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
403
|
|
|
|
|
|
|
|
403
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,007
|
)
|
|
|
(15,007
|
)
|
Balance at June 30, 2019
|
|
|
148,382,299
|
|
|
$
|
148
|
|
|
$
|
269,927
|
|
|
$
|
(337,560
|
)
|
|
$
|
(67,485
|
)
|
Balance at March 31, 2018
|
|
|
145,569,955
|
|
|
$
|
146
|
|
|
$
|
267,747
|
|
|
$
|
(303,335
|
)
|
|
$
|
(35,442
|
)
|
Changes during the three-month period ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Convertible notes exchange
|
|
|
2,613,636
|
|
|
|
2
|
|
|
|
1,148
|
|
|
|
|
|
|
|
1,150
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,462
|
)
|
|
|
(8,462
|
)
|
Balance at June 30, 2018
|
|
|
148,183,591
|
|
|
$
|
148
|
|
|
$
|
268,907
|
|
|
$
|
(311,797
|
)
|
|
$
|
(42,742
|
)
|
Balance at March 31, 2019
|
|
|
148,382,299
|
|
|
$
|
148
|
|
|
$
|
269,814
|
|
|
$
|
(329,817
|
)
|
|
$
|
(59,855
|
)
|
Changes during the three-month period ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation related to stock options
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
113
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,743
|
)
|
|
|
(7,743
|
)
|
Balance at June 30, 2019
|
|
|
148,382,299
|
|
|
$
|
148
|
|
|
$
|
269,927
|
|
|
$
|
(337,560
|
)
|
|
$
|
(67,485
|
)
|
|
*
|
Represents an amount less than $1.
|
|
(1)
|
Common Stock, $0.001 par value; Authorized – as of June 30, 2019 and 2018 - 350,000,000 and 250,000,000, respectively.
|
The accompanying
notes are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
|
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,007
|
)
|
|
$
|
(15,701
|
)
|
Adjustments required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
403
|
|
|
|
74
|
|
Depreciation
|
|
|
784
|
|
|
|
846
|
|
Financial expenses, net (mainly exchange differences)
|
|
|
150
|
|
|
|
94
|
|
Changes in accrued liability for employee rights upon retirement
|
|
|
13
|
|
|
|
(121
|
)
|
Gain on amounts funded in respect of employee rights upon retirement
|
|
|
|
|
|
|
(43
|
)
|
Net loss in connection with conversions of convertible notes
|
|
|
|
|
|
|
186
|
|
Amortization of debt issuance costs and debt discount
|
|
|
1,435
|
|
|
|
1,257
|
|
Issuance of shares for interest
payment in connection with conversions of convertible notes
|
|
|
|
|
|
|
205
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase (decrease) in contracts liability (including non-current portion)
|
|
|
(442
|
)
|
|
|
41
|
|
Increase in accounts receivable and other assets
|
|
|
(2,811
|
)
|
|
|
(3,989
|
)
|
Changes in right of use assets
|
|
|
(69
|
)
|
|
|
|
|
Decrease in inventories
|
|
|
1,571
|
|
|
|
855
|
|
Increase (decrease) in accounts payable and accruals
|
|
|
1,471
|
|
|
|
(1,288
|
)
|
Increase in other long term liabilities
|
|
|
56
|
|
|
|
207
|
|
Net cash used in operating activities
|
|
$
|
(12,446
|
)
|
|
$
|
(17,377
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
(207
|
)
|
|
$
|
(394
|
)
|
Increase in restricted deposit
|
|
|
(236
|
)
|
|
|
(162
|
)
|
Amounts funded in respect of employee rights upon retirement, net
|
|
|
(23
|
)
|
|
|
109
|
|
Net cash used in investing activities
|
|
$
|
(466
|
)
|
|
$
|
(447
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net payment for convertible notes
|
|
|
-
|
|
|
|
(4,752
|
)
|
Net cash used in financing activities
|
|
|
-
|
|
|
|
(4,752
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
$
|
200
|
|
|
$
|
(260
|
)
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(12,712
|
)
|
|
|
(22,836
|
)
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
37,808
|
|
|
|
51,163
|
|
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
25,096
|
|
|
$
|
28,327
|
|
The accompanying
notes are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
(Continued) - 2
|
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
329
|
|
|
$
|
242
|
|
Convertible notes conversions
|
|
|
|
|
|
$
|
2,137
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY
DISCLOSURE ON CASH FLOWS
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,172
|
|
|
$
|
2,408
|
|
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.
The Company plans to file a
biologics license application (“BLA”) for pegunigalsidase alfa for the treatment of Fabry disease in the first
quarter of 2020 through the FDA’s Accelerated Approval pathway. This decision is the result of a series of meetings and
correspondence between the Company and its commercialization partner, Chiesi, on the one hand and the FDA, on the other hand.
The Company and Chiesi have initiated preparations for a BLA submission based on data received from the completed phase I/II
clinical trials of pegunigalsidase alfa and from the ongoing phase III BRIDGE clinical trial.
Obtaining marketing approval with
respect to any product candidate in any country is dependent on the Company’s ability to implement the necessary regulatory
steps required to obtain such approvals. The Company cannot reasonably predict the outcome of these activities.
On October 19, 2017, Protalix
Ltd. and Chiesi entered into an Exclusive License and Supply Agreement (the “Chiesi Ex-US Agreement”) pursuant to which
Chiesi was granted an exclusive license for all markets outside of the United States to commercialize pegunigalsidase alfa. On
July 23, 2018, Protalix Ltd. entered into an Exclusive License and Supply Agreement with Chiesi (the “Chiesi US Agreement”)
with respect to the commercialization of pegunigalsidase alfa in the United States.
Under each of the Chiesi Ex-US Agreement
and the Chiesi US Agreement (collectively, the “Chiesi Agreements”), Chiesi made an upfront payment to Protalix Ltd.
of $25.0 million in connection with the execution of the agreement. In addition, under the Chiesi Ex-US Agreement, Protalix
Ltd. is entitled to additional payments of up to $25.0 million in pegunigalsidase alfa development costs, capped at $10.0 million
per year, and to receive additional payments of up to $320.0 million, in the aggregate, in regulatory and commercial milestone
payments. Under the Chiesi US Agreement, Protalix Ltd. is entitled to payments of up to a maximum of $20.0 million to cover
development costs for pegunigalsidase alfa, subject to a maximum of $7.5 million per year, and to receive an additional up
to a maximum of $760.0 million, in the aggregate, in regulatory and commercial milestone payments.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
Under the terms of both of the Chiesi
Agreements, Protalix Ltd. will manufacture all of the pegunigalsidase alfa needed under the agreements, subject to certain exceptions,
and Chiesi will purchase pegunigalsidase alfa from Protalix, subject to certain terms and conditions. Under the Chiesi Ex-US Agreement,
Chiesi is required to make tiered payments of 15% to 35% of its net sales, depending on the amount of annual sales outside of the
United States, as consideration for product supply. Under the Chiesi US Agreement, Chiesi is required to make tiered payments of
15% to 40% of its net sales, depending on the amount of annual sales in the United States, as consideration for product supply.
Since its approval by the FDA,
taliglucerase alfa has been marketed by Pfizer in accordance with the exclusive license and supply agreement entered into
between Protalix Ltd. and Pfizer, which is referred to herein as the Pfizer Agreement. In October 2015, Protalix Ltd. and
Pfizer entered into an amended exclusive license and supply agreement, which is referred to herein as the Amended Pfizer
Agreement, pursuant to which the Company sold to Pfizer its share in the collaboration created under the Pfizer Agreement for
the commercialization of Elelyso. As part of the sale, the Company agreed to transfer its rights to Elelyso in Israel to
Pfizer while gaining full rights to it in Brazil. Under the Amended Pfizer Agreement, Pfizer is entitled to all of the
revenues, and is responsible for 100% of expenses globally for Elelyso, excluding Brazil where the Company is responsible for
all expenses and retains all revenues.
On June 18, 2013, the Company
entered into a Supply and Technology Transfer Agreement (the “Brazil Agreement”) with 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, the Company has the right to terminate the Brazil Agreement. Notwithstanding the termination
right, the Company is, at this time, continuing to supply alfataliglicerase to Fiocruz under the Brazil Agreement, and patients
continue to be treated with alfataliglicerase in Brazil.
Going Concern
Since the Company is
engaged in research and development activities, it has not derived significant income from its activities and has
incurred accumulated losses in the amount of $337.6 million through June 30, 2019 and cash outflows from
operating activities. As of June 30, 2019, the Company has outstanding $57.9 million aggregate principal
amount of its
7.50% convertible promissory notes due 2021 (the
“2021 Notes”) which are
secured with a perfected lien on all of the Company’s assets
.
Under the terms of the indenture governing the 2021 Notes, the Company is required to maintain a minimum cash balance of at
least $7.5
million.
Based on its current cash
resources and commitments, the Company may not be able to meet its current planned development activities and the
corresponding level of expenditures for the next 12 months from the date of approval of the financial statements as of
June 30, 2019 absent a refinancing or restructuring. These factors raise substantial doubt as to the
Company’s ability to continue as a going concern.
The Company’s management
is in the process of evaluating refinancing and restructuring alternatives, including a restructuring of its outstanding
convertible notes, and related transactions. However, there is no certainty about the Company’s ability to obtain such funding.
The financial information
has been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge
its liabilities in the normal course of business. If the Company does not complete a refinancing or restructuring, it will
need to curtail or cease operations. These financial statements do not include any adjustments that may be necessary should
the Company be unable to continue as a going concern.
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.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(continued)
:
These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements in the Annual Report on Form 10-K for the year
ended December 31, 2018, filed by the Company with the Commission. The comparative balance sheet at December 31, 2018
has been derived from the audited financial statements at that date.
Basic and diluted loss per share
(“LPS”) are computed by dividing net loss by the weighted average number of shares of the Company’s common
stock, par value $0.001 per share (the “Common Stock”), outstanding for each period.
The calculation of diluted LPS does not include 73,306,448
and 78,125,432 shares of Common Stock underlying outstanding options and restricted shares of Common Stock and shares issuable
upon conversion of outstanding convertible notes for the six months ended June 30, 2018 and 2019, respectively, and 72,836,697
and 78,051,423 shares of Common Stock for the three months ended June 30, 2018 and 2019, respectively, because the effect
would be anti-dilutive.
|
d.
|
Recently adopted standards
|
In February 2016, the Financial Accounting Standards
Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting,
Leases (Topic 840). The new standard requires a lessee to record assets and liabilities on its balance sheet for all leases with
terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern
of expense recognition in the lessee’s income statement. The Company adopted this standard as of January 1, 2019 on
a modified retrospective basis and will not restate comparative periods. The Company elected the package of practical expedients
permitted under the transition guidance within the new standard which, among other things, allows the Company to carryforward the
historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months
or less off of its balance sheet. The Company recognized those lease payments in its statements of operations on a straight-line
basis over the lease period.
As of the adoption date, the Company recognized an
operating lease asset and liability of $5.9 million and $5.7 million, respectively, as of January 1, 2019 on its
balance sheet.
|
e.
|
Newly issued accounting pronouncements
|
In June 2018, the FASB issued ASU 2018-07, “Compensation
– Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting” that expands the scope
of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should
apply the requirements of ASC Topic 718 to nonemployee awards except for certain exemptions specified in ASU 2018-07. The guidance
is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year.
Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company does not expect the
adoption of ASU 2018-07 to have a material impact on its financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - INVENTORIES
|
a.
|
Inventories at June 30, 2019 and December 31, 2018 consisted of the following:
|
|
|
June 30,
|
|
|
December 31,
|
|
(
U.S. dollars in thousands)
|
|
2019
|
|
|
2018
|
|
Raw materials
|
|
|
3,442
|
|
|
$
|
3,792
|
|
Work in progress
|
|
|
313
|
|
|
|
|
|
Finished goods
|
|
|
3,243
|
|
|
|
4,777
|
|
Total inventory
|
|
$
|
6,998
|
|
|
$
|
8,569
|
|
|
b.
|
During the year ended December 31, 2018 and the six months ended June 30, 2019, the Company recorded approximately $1.1 million
and $25,000, respectively, for write-down of inventory under cost of goods sold.
|
NOTE 3 – FAIR VALUE MEASUREMENT
The Company measures fair value and discloses fair
value measurements for financial assets and liabilities. Fair value is based on the price that would be received from the sale
of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
The accounting standard establishes a fair value
hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described
below:
Level 1: Quoted prices (unadjusted) in active markets
that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level
1 inputs.
Level 2: Observable prices that are based on inputs
not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little
or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes
valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible
and considers counterparty credit risk in its assessment of fair value.
The fair value of the financial instruments included
in the working capital of the Company is usually identical or close to their carrying value. The fair value of the convertible
notes derivative is based on Level 3 measurement.
The fair value of the $57.9 million
aggregate principal amount of the
Company’s outstanding 2021
Notes
as of June 30, 2019 is approximately $63.2 million based on a Level 3 measurement.
The
Company prepared a valuation of the fair value of the Company’s outstanding 2021 Notes (a Level 3 valuation) as of June
30,
2019. The value of these notes was estimated by implementing the binomial model. The liability component was valued based on the
Income Approach. The following parameters were used:
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – FAIR VALUE MEASUREMENT
(continued)
:
|
|
2021 Notes
|
Stock price (USD)
|
|
0.47
|
Expected term
|
|
2.38
|
Risk free rate
|
|
1.73%
|
Volatility
|
|
70.95%
|
Yield
|
|
11.72%
|
NOTE 4 – OPERATING LEASES
The Company is a party to a number of lease agreements
for its facilities, the latest of which has been extended until the end of 2021. The Company has the option to extend certain
of such agreements on two additional occasions for additional five-year periods each for a total of 10 additional years. During
the extended lease period, the aggregate monthly rental payments will increase by 7.5% - 10% for each option. The Company expects
to exercise these options in future periods. As of June 30, 2019, the Company provided bank guarantees of approximately $431,000
in the aggregate, to secure the fulfillment of its obligations under the lease agreements. As of December 31, 2018, the future
minimum lease payments required under the operating leases for such premises are approximately $758,000, $758,000 and $621,000,
for fiscal years 2019 through 2021, respectively.
The Company entered into several three-year leases
for vehicles which are regularly amended as new vehicles are leased. As of December 31, 2018, the future minimum lease payments
for the years ending December 31, 2019, 2020 and 2021 are approximately $474,000, $333,000 and $82,000, respectively.
The following table sets forth data regarding the
Company’s operating leases for the six and three months ended June 30, 2019:
|
|
Six Months
Ended
|
|
Three
Months
E
nded
|
|
(
U.S. dollars in thousands)
|
|
June 30, 2019
|
|
Operating lease costs
|
|
$
|
593
|
|
|
301
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
662
|
|
|
334
|
|
Right of use assets obtained in exchange for new operating lease liabilities
|
|
|
227
|
|
|
175
|
|
The following table sets forth data regarding the
Company’s operating leases as of June 30, 2019:
(
U.S. dollars in thousands)
|
|
June
30,
2019
|
|
Weighted average remaining lease term (in years)
|
|
|
10.7
|
|
Weighted average discount rate
|
|
|
12.58
|
%
|
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - OPERATING LEASES
(continued)
:
The following table sets forth a maturity analysis
of the Company’s operating lease liabilities as of June 30, 2019:
(
U.S. dollars in thousands)
|
|
June 30, 2019
|
|
2019 (excluding the six months ended June 30, 2019)
|
|
$
|
637
|
|
2020
|
|
$
|
1,113
|
|
2021
|
|
$
|
885
|
|
2022
|
|
$
|
806
|
|
2023
|
|
$
|
793
|
|
After 2023
|
|
$
|
6,572
|
|
Total undiscounted cash flows
|
|
$
|
10,806
|
|
Less: imputed interest
|
|
$
|
5,013
|
|
Present value of operating lease liabilities
|
|
$
|
5,793
|
|
NOTE 5 – REVENUES
The following table summarizes the
Company’s disaggregation of revenues:
|
|
Six Months Ended June 30,
|
|
(U.S. dollars in thousands)
|
|
2019
|
|
|
2018
|
|
Pfizer
|
|
$
|
2,735
|
|
|
$
|
3,986
|
|
Brazil
|
|
$
|
4,225
|
|
|
$
|
2,573
|
|
Total revenues from selling goods
|
|
$
|
6,960
|
|
|
$
|
6,559
|
|
Revenues from license and R&D services
|
|
$
|
15,726
|
|
|
$
|
4,993
|
|
The following table sets forth data
regarding the Company’s contracts liability:
|
|
Six Months Ended June 30,
|
|
(U.S. dollars in thousands)
|
|
2019
|
|
|
2018
|
|
Contracts liability at the beginning of the period
|
|
$
|
42,895
|
|
|
$
|
25,015
|
|
Additions during the period
|
|
|
15,284
|
|
|
|
5,034
|
|
Revenue recognized during the period
|
|
|
(15,726
|
)
|
|
|
(4,993
|
)
|
Contracts liability at the end of the period
|
|
$
|
42,453
|
|
|
$
|
25,056
|
|
The following table represents the
Company’s unsatisfied performance obligation:
|
|
June 30,
|
|
(U.S. dollars in thousands)
|
|
2019
|
|
|
2018
|
|
Unsatisfied performance obligation
|
|
$
|
57,480
|
|
|
$
|
88,171
|
|
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - STOCK TRANSACTIONS
In June 2019, the Company granted to its new chief
executive officer 10-year options to purchase, in the aggregate, 1,600,000 shares of Common Stock under the Company’s 2006
Employee Stock Incentive Plan, as amended (the “Plan”). The options have an exercise price equal to $0.469 per share,
vest over a four-year period in 16 equal quarterly increments. Vesting of the options is subject to acceleration in full upon a
Corporate Transaction or a Change in Control, as those terms are defined in the Plan, and are subject to certain other terms and
conditions. The Company estimated the fair value of the options on the date of grant using the Black-Scholes option-pricing model
to be approximately $449,000 based on the following weighted average assumptions: share price equal to $0.469; dividend yield of
0% for all years; expected volatility of 65.3%; risk-free interest rates of 1.8%; and expected life of six years.
NOTE 7 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through
the date on which the consolidated financial statements were available to be issued and no subsequent events were identified.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
You should read the following
discussion and analysis of our financial condition and results of operations together with our financial statements and the
consolidated financial statements and the related notes included elsewhere in this Form 10-Q and in our Annual Report on Form
10-K for the year ended December
31, 2018. Some of the information contained in this discussion and analysis,
particularly with respect to our plans and strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should read “Risk Factors” in our Annual Report on Form 10-K
for the year ended December
31, 2018 and in this Form 10-Q 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 Ex-US 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 Ex-US Agreement,
Protalix Ltd. retained the right to commercialize pegunigalsidase alfa in the United States. Under the Chiesi Ex-US Agreement,
Chiesi made an upfront payment to Protalix Ltd. of $25.0
million
in connection with the execution of the agreement and Protalix Ltd. is entitled to additional payments of up to $25.0
million
in development costs in the aggregate, capped at $10.0
million
per year. Protalix Ltd. is also eligible to receive an additional up to a maximum of $320.0
million,
in the aggregate, in regulatory and commercial milestone payments. Protalix Ltd. agreed to manufacture all of the PRX-102 needed
for all purposes under the agreement, subject to certain exceptions, and Chiesi will purchase 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 the Chiesi US Agreement
with respect to the development and commercialization of pegunigalsidase alfa in the United States. Under the terms of the Chiesi
US 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,
in the aggregate, to cover development costs for PRX-102, subject to a maximum of $7.5
million
per year. Protalix Ltd. is also eligible to receive an additional up to a maximum of $760.0
million,
in the aggregate, in regulatory and commercial milestone payments. Chiesi will also make tiered payments of 15% to 40% of its net
sales under the Chiesi US Agreement to Protalix Ltd., depending on the amount of annual sales, subject to certain terms and conditions,
as consideration for product supply.
We
plan to file a BLA for PRX-102 for the treatment of Fabry disease in the first quarter of 2020 through the FDA’s Accelerated
Approval pathway. This decision is the result of a series of meetings and correspondence between our company and Chiesi, on the
one hand, and the FDA, on the other hand. We and Chiesi have initiated preparations for the BLA submission based on data from the
completed phase I/II clinical trials of PRX-102 and from our ongoing phase III
BRIDGE
clinical trial.
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. 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 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 critical accounting policies since we filed our Annual Report on Form 10-K for the year ended December 31, 2018.
The discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we prepared in accordance with U.S. generally accepted accounting principles.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well
as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments,
including those described in greater detail below. We base our estimates on historical experience and on various other factors
that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
Results of Operations
Three months ended June
30, 2019 compared
to the three months ended June
30, 2018
Revenues from Selling Goods
We recorded revenues from selling goods of $3.4 million
during the three months ended June 30, 2019, an increase of $1.4 million, or 70%, compared to revenues of $2.0 million
for the three months ended June 30, 2018. The increase resulted primarily from an increase of $2.1 million in sales of
drug product to Brazil.
Revenues from License and R&D Services
We recorded revenues from license and R&D services of
$8.8 million for the three months ended June 30, 2019, an increase of $6.0 million compared to revenues of
$2.8 million for the three months ended June 30, 2018. Revenues from the license agreements represent the revenues
we recognized in connection with the Chiesi Agreements. The increase is primarily due to revenues recognized under the Chiesi
US Agreement which we entered into on July 23, 2018.
Cost of Goods Sold
Cost of goods sold was $2.7 million for the three months
ended June 30, 2019, an increase of $0.5 million, or 23%, from cost of goods sold of $2.2 million for the three
months ended June 30, 2018. The increase is mainly due to an increase in selling goods.
Research and Development Expenses, Net
Research and development expenses were $13.3 million for
the three months ended June 30, 2019, an increase of $5.8 million, or 77%, compared to $7.5 million of research
and development expenses for the three months ended June 30, 2018. The increase resulted primarily from an increase of $5.4 million
in clinical trial related costs.
We expect research and development expenses to continue to
be our primary expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2.1 million
for the three months ended June 30, 2019, a decrease of $0.1 million, or 5%, compared to $2.2 million for the three
months ended June 30, 2018.
Financial Expenses, net
Financial expenses net were $1.9 million
for the three months ended June 30, 2019, an increase of $0.2 million, or 12%, compared to financial expenses net of
$1.7 million for the three months ended June 30, 2018. Financial expenses are comprised primarily of interest expense
on our outstanding convertible notes of $1.1 million for the three months ended June 30, 2019 and 2018.
Six months ended June
30, 2019 compared
to the six months ended June
30, 2018
Revenues from Selling Goods
We recorded revenues from selling goods of $7.0 million
during the six months ended June 30, 2019, an increase of $0.4 million, or 6%, compared to revenues of $6.6 million
for the six months ended June 30, 2018.
Revenues from License and R&D Services
We recorded revenues from license and R&D services of $15.7 million
for the six months ended June 30, 2019, an increase of $10.7 million, or 214%, compared to revenues of $5.0 million
for the six months ended June 30, 2018. Revenues from the license agreements represent the revenues we recognized in connection
with the Chiesi Agreements. The increase is primarily due to revenues recognized under the Chiesi
US Agreement which we entered into on July 23, 2018.
Cost of Goods Sold
Cost of goods sold was $4.7 million for the six
months ended June 30, 2019, a decrease of $0.4 million, or 8%, from cost of goods sold of $5.1 million for
the six months ended June 30, 2018.
Research and Development Expenses, Net
Research and development expenses were $25.0 million
for the six months ended June 30, 2019, an increase of $10.2 million, or 69%, compared to $14.8 million of research
and development expenses for the six months ended June 30, 2018. The increase resulted primarily from an increase of
$8.5 million in clinical trial related costs.
We expect research and development expenses to continue to
be our primary expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $4.3 million
for the six months ended June 30, 2019, a decrease of $0.4 million, or 9%, compared to $4.7 million for the six
months ended June 30, 2018.
Financial Expenses, net
Financial expenses net were
$3.6 million for the six months ended June 30, 2019, a decrease of $0.2 million, or 5%, compared to financial
expenses net of $3.8 million for the six months ended June 30, 2018. Financial expenses are comprised primarily of
interest expense on our outstanding convertible notes of $2.2 million for the six months ended June 30, 2019 and
2018.
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 net 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 our 4.50% convertible promissory
notes due 2018, or the 2018 Notes, including $9.0 million aggregate principal amount of 2018 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 our 7.50% convertible promissory notes due 2021,
or the 2021 Notes. Finally, on July 25, 2017, we completed a private placement of an additional $10.0 million in
aggregate principal amount of 2021 Notes.
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.
In
the fourth quarter of 2017, Chiesi made a payment to Protalix Ltd. of $25.0
million
in connection with the execution of the Chiesi Ex-US Agreement and in the third quarter of 2018, Chiesi made a payment to Protalix
Ltd. of $25.0
million in connection with the execution of
the Chiesi US Agreement.
Cash Flows
Net cash used in operations was $12.4 million
for the six months ended June 30, 2019. The net loss for the six months ended June 30, 2019 of $15.0 million was
further increased by a $2.8 million increase in accounts receivable, but was partially offset by an increase of $1.5 million
in accounts payable and accruals and by a decrease in inventories of $1.6 million. Net cash used in investing activities for
the six months ended June 30, 2019 was $0.5 million and consisted primarily of purchases of property and equipment, and
an increase in restricted deposit.
Net cash used in operations was $17.4 million
for the six months ended June 30, 2018. The net loss for the six months ended June 30, 2018 of $15.7 million was
further increased by a $4.0 million increase in accounts receivable and a decrease of $1.3 million in accounts payable
and accruals, but was offset by $1.3 million of amortization expenses in connection with the convertible notes and depreciation
expenses of $846,000. Net cash used in investing activities for the six months ended June 30, 2018 was $447,000 and consisted
primarily of purchases of property and equipment, and an increase in restricted deposit. Net cash used in financing activities
was $4.8 million and included the repayment of convertible notes.
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 PRX-102. Since we are primarily engaged in research and development activities, we have not
derived significant income from our activities and have incurred accumulated losses in the amount of $337.6 million
through June 30, 2019 and cash outflows from operating activities. We currently have outstanding $57.9 million
aggregate principal amount of our 2021 Notes that are secured with a perfected lien on all of our assets. Under the terms of
the indenture governing the 2021 Notes, we are required to maintain a minimum cash balance of at least $7.5 million.
Based on our current cash resources and commitments, we believe we may not be able to meet our current
planned development activities and the corresponding level of expenditures for the next 12 months from the date of approval
of the financial statements as of June 30, 2019 absent a refinancing or restructuring. These factors raise
substantial doubt as to our ability to continue as a going concern.
Our management is in the process of
evaluating refinancing and restructuring alternatives, including a restructuring of our outstanding convertible notes,
and related transactions. However, there is no certainty about
our ability to obtain such funding.
The financial information has been prepared
on a going concern basis, which assumes we will continue to realize our assets and discharge our liabilities in the normal course
of business. If we do not raise the requisite funds, we will need to curtail or cease operations. These financial statements do
not include any adjustments that may be necessary should we be unable to continue as a going concern.
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 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 will 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 the Chiesi Agreements.
Effects of Inflation and Currency Fluctuations
Inflation generally affects us by increasing
our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations
during the six months ended June 30, 2019 and June 30, 2018.
Currency fluctuations could affect us through
increased or decreased acquisition costs for certain goods and services. We do not believe currency fluctuations have had a material
effect on our results of operations during the six months ended June 30, 2019 and June 30, 2018.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
as of each of June 30, 2019 and June 30, 2018.