e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
OR
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| o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to
001-33357
(Commission file number)
PROTALIX BIOTHERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
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| Florida
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65-0643773 |
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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2 Snunit Street
Science Park
POB 455
Carmiel, Israel
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20100 |
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| (Address of principal executive offices)
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(Zip Code) |
972-4-988-9488
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class
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|
Name of each exchange on which registered |
| Common stock, par value $0.001 per share
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|
NYSE Amex |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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| Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
On July 15, 2009, approximately 76,512,739 shares of the Registrant’s common stock, $0.001 par
value, were outstanding.
FORM 10-Q
TABLE OF CONTENTS
i
Except where the context otherwise requires, the terms, “we,” “us,” “our” or “the Company,” refer
to the business of Protalix BioTherapeutics, Inc. and its consolidated subsidiaries, and “Protalix”
or “Protalix Ltd.” refers to the business of Protalix Ltd., our wholly-owned subsidiary and sole
operating unit.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements set forth under the captions “Business,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and “Risk Factors,” and other statements included
elsewhere in this Quarterly Report on Form 10-Q, which are not historical, constitute
“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements
regarding the expectations, beliefs, intentions or strategies for the future. When used in this
report, the terms “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases
of similar import, as they relate to our or our subsidiary or our management, are intended to
identify forward-looking statements. We intend that all forward-looking statements be subject to
the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are only predictions and reflect our views as of the date they are made
with respect to future events and financial performance, and we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date on which the
statement is made or to reflect the occurrence of unanticipated events, except as may be required
under applicable law. Forward-looking statements are subject to many risks and uncertainties that
could cause our actual results to differ materially from any future results expressed or implied by
the forward-looking statements.
Examples of the risks and uncertainties include, but are not limited to, the following:
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• |
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the inherent risks and uncertainties in developing drug platforms and products of
the type we are developing; |
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• |
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delays in our preparation and filing of applications for regulatory approval; |
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• |
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delays in the approval or potential rejection of any applications we file with the
United States Food and Drug Administration, or the FDA, or other regulatory
authorities; |
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• |
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any lack of progress of our research and development (including the results of
clinical trials we are conducting); |
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• |
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obtaining on a timely basis sufficient patient enrollment in our clinical trials; |
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• |
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the impact of development of competing therapies and/or technologies by other
companies; |
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• |
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our ability to obtain additional financing required to fund our research programs; |
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• |
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the risk that we will not be able to develop a successful sales and marketing
organization in a timely manner, if at all; |
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• |
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our ability to establish and maintain strategic license, collaboration and
distribution arrangements and to manage our relationships with collaborators,
distributors and partners; |
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• |
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potential product liability risks and risks of securing adequate levels of product
liability and clinical trial insurance coverage; |
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• |
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the availability of reimbursement to patients from health care payors for any of our
drug products, if approved; |
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• |
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the possibility of infringing a third party’s patents or other intellectual property
rights; |
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• |
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the uncertainty of obtaining patents covering our products and processes and in
successfully enforcing our intellectual property rights against third parties; |
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• |
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the possible disruption of our operations due to terrorist activities and armed
conflict, including as a result of the disruption of the operations of regulatory
authorities, our subsidiary, our manufacturing facilities and our customers, suppliers,
distributors, collaborative partners, licensees and clinical trial sites; and |
| |
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• |
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other risks and uncertainties detailed in Section 1A of this Quarterly Report. |
In addition, companies in the pharmaceutical and biotechnology industries have suffered significant
setbacks in advanced clinical trials, even after obtaining promising earlier trial results. These
and other risks and uncertainties are detailed in Section 1A of our Annual Report on Form 10-K for
the year ended December 31, 2008, and described from time to time in our future reports to be filed
with the Securities and Exchange Commission. We undertake no obligation to update, and we do not
have a policy of updating or revising, these forward-looking statements.
1
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
PROTALIX BIOTHERAPEUTICS, INC.
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)
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June 30, 2009 |
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December 31, 2008 |
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(Unaudited) |
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|
ASSETS |
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CURRENT ASSETS: |
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|
Cash and cash equivalents |
|
$ |
29,132 |
|
|
$ |
42,596 |
|
Accounts receivable |
|
|
1,945 |
|
|
|
793 |
|
|
|
|
|
|
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Total current assets |
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31,077 |
|
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|
43,389 |
|
|
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|
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|
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FUNDS IN RESPECT OF EMPLOYEE
RIGHTS UPON RETIREMENT |
|
|
650 |
|
|
|
581 |
|
|
|
|
|
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PROPERTY AND EQUIPMENT, NET |
|
|
10,458 |
|
|
|
6,841 |
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|
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|
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Total assets |
|
$ |
42,185 |
|
|
$ |
50,811 |
|
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable and accruals: |
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Trade |
|
$ |
1,982 |
|
|
$ |
2,235 |
|
Other |
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|
4,232 |
|
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|
3,292 |
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|
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|
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Total current liabilities |
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|
6,214 |
|
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|
5,527 |
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LIABILITY FOR EMPLOYEE RIGHTS
UPON RETIREMENT |
|
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1,056 |
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|
937 |
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|
|
|
|
|
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|
|
|
|
|
|
|
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Total liabilities |
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7,270 |
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|
6,464 |
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SHAREHOLDERS’ EQUITY |
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34,915 |
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|
44,347 |
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Total liabilities and shareholders’ equity |
|
$ |
42,185 |
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$ |
50,811 |
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|
|
|
|
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|
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
PROTALIX BIOTHERAPEUTICS, INC.
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share data)
(Unaudited)
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Period from |
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December 27, 1993* |
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Six Months Ended |
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Three Months Ended |
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through |
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June 30, 2009 |
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June 30, 2008 |
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June 30, 2009 |
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June 30, 2008 |
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|
June 30, 2009 |
|
REVENUES |
|
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|
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|
|
|
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|
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$ |
830 |
|
COST OF REVENUES |
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|
|
|
|
|
|
|
|
|
|
|
|
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|
206 |
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|
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GROSS PROFIT |
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|
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|
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|
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|
|
|
|
|
|
624 |
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|
|
|
|
|
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|
|
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RESEARCH AND DEVELOPMENT EXPENSES (1) |
|
$ |
11,296 |
|
|
$ |
9,684 |
|
|
$ |
6,210 |
|
|
$ |
4,031 |
|
|
|
65,713 |
|
less — grants |
|
|
(2,800 |
) |
|
|
(2,515 |
) |
|
|
(1,508 |
) |
|
|
(1,149 |
) |
|
|
(13,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,496 |
|
|
|
7,169 |
|
|
|
4,702 |
|
|
|
2,882 |
|
|
|
52,012 |
|
|
|
|
|
|
|
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|
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|
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|
GENERAL AND ADMINISTRATIVE EXPENSES (2) |
|
|
2,412 |
|
|
|
3,992 |
|
|
|
1,171 |
|
|
|
2,016 |
|
|
|
38,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
OPERATING LOSS |
|
|
10,908 |
|
|
|
11,161 |
|
|
|
5,873 |
|
|
|
4,898 |
|
|
|
90,160 |
|
FINANCIAL INCOME — NET |
|
|
(298 |
) |
|
|
(1,819 |
) |
|
|
(446 |
) |
|
|
(669 |
) |
|
|
(4,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS BEFORE CHANGE IN
ACCOUNTING PRINCIPLE |
|
|
10,610 |
|
|
|
9,342 |
|
|
|
5,427 |
|
|
|
4,229 |
|
|
|
85,657 |
|
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
NET LOSS FOR THE PERIOD |
|
$ |
10,610 |
|
|
$ |
9,342 |
|
|
$ |
5,427 |
|
|
$ |
4,229 |
|
|
$ |
85,620 |
|
|
|
|
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|
NET LOSS PER SHARE OF COMMON STOCK —
BASIC AND DILUTED: |
|
$ |
0.14 |
|
|
$ |
0.12 |
|
|
$ |
0.07 |
|
|
$ |
0.06 |
|
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|
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|
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK USED IN COMPUTING LOSS PER
SHARE: |
|
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|
|
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Basic and diluted |
|
|
76,067,492 |
|
|
|
75,855,594 |
|
|
|
76,186,887 |
|
|
|
75,898,295 |
|
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|
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|
|
|
(1) Includes share-based compensation |
|
|
663 |
|
|
|
672 |
|
|
|
385 |
|
|
|
(655 |
) |
|
|
7,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Includes share-based compensation |
|
|
501 |
|
|
|
1,495 |
|
|
|
317 |
|
|
|
648 |
|
|
|
23,346 |
|
|
|
|
|
|
|
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| * |
|
Incorporation date. See Note 1a. |
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
PROTALIX BIOTHERAPEUTICS, INC.
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars in thousands, except share data)
| |
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Deficit |
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| |
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accumulated |
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| |
|
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Convertible |
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|
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|
Convertible |
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|
|
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Additional |
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|
during |
|
|
|
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| |
|
Common |
|
|
Preferred |
|
|
Common |
|
|
Preferred |
|
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|
paid–in |
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|
development |
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| |
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Stock (2) |
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Shares |
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|
Stock |
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|
Shares |
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|
Warrants |
|
|
capital |
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|
stage |
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Total |
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| |
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Number of shares |
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|
Amount |
|
Balance at December 27, 1993(1) |
|
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Changes during the period from
December 27, 1993* through December
31, 2008: |
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Common Stock and
convertible preferred A, B and C
shares and warrants issued for cash
(net of issuance costs of $5,078) |
|
|
38,856,127 |
|
|
|
398,227 |
|
|
$ |
39 |
|
|
$ |
1 |
|
|
$ |
1,382 |
|
|
$ |
73,836 |
|
|
|
|
|
|
$ |
75,258 |
|
Exercise of options granted
to employees and
non-employees (includes Net
Exercise) |
|
|
2,948,420 |
|
|
|
847 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
413 |
|
|
|
|
|
|
|
416 |
|
Conversion of
convertible preferred
shares into common stock |
|
|
24,375,870 |
|
|
|
(399,074 |
) |
|
|
24 |
|
|
|
(1 |
) |
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
Change in accounting principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
$ |
37 |
|
|
|
|
|
Expiration of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
34 |
|
|
|
|
|
|
|
|
|
Merger with a wholly
owned subsidiary of the
Company (net of issuance cost
of $642) |
|
|
583,280 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
240 |
|
|
|
|
|
|
|
241 |
|
Exercise of warrants |
|
|
9,171,695 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
(1,348 |
) |
|
|
15,342 |
|
|
|
|
|
|
|
14,003 |
|
Restricted common stock
issued for future services |
|
|
2,667 |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,468 |
|
|
|
|
|
|
|
29,468 |
|
Net loss for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,047 |
) |
|
|
(75,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
75,938,059 |
|
|
|
— |
|
|
|
76 |
|
|
|
— |
|
|
|
— |
|
|
|
119,281 |
|
|
|
(75,010 |
) |
|
|
44,347 |
|
Changes during the six month period
ended June 30, 2009 (Unaudited): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,164 |
|
|
|
|
|
|
|
1,164 |
|
Exercise of options granted
to employees (includes
Net Exercise) |
|
|
439,680 |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
Net loss for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,610 |
) |
|
|
(10,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 (Unaudited) |
|
|
76,377,739 |
|
|
|
|
|
|
$ |
76 |
|
|
|
— |
|
|
|
— |
|
|
$ |
120,459 |
|
|
$ |
(85,620 |
) |
|
$ |
34,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
|
Represents an amount less than $1. |
| |
| (1) |
|
Incorporation date. See Note 1a. |
| |
| (2) |
|
Common Stock, $0.001 par value; Authorized — as of December 31, 2008 and June 30, 2009 -
150,000,000 shares. |
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
PROTALIX BIOTHERAPEUTICS, INC.
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands, except share data)
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Period from |
|
| |
|
|
|
|
|
|
|
|
|
December 27, 1993* |
|
| |
|
Six Months Ended June 30, |
|
|
through |
|
| |
|
2009 |
|
|
2008 |
|
|
June 30, 2009 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
$ |
(10,610 |
) |
|
$ |
(9,342 |
) |
|
$ |
(85,620 |
) |
Adjustments required to reconcile net loss to net
cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
— |
|
Cumulative effect of change in accounting principle |
|
|
|
|
|
|
|
|
|
|
(37 |
) |
Share based compensation |
|
|
1,164 |
|
|
|
2,167 |
|
|
|
30,619 |
|
Financial income, net (mainly exchange differences) |
|
|
(77 |
) |
|
|
(916 |
) |
|
|
(1,153 |
) |
Depreciation and impairment of fixed assets |
|
|
929 |
|
|
|
582 |
|
|
|
4,169 |
|
Changes in accrued liability for employee rights
upon retirement |
|
|
147 |
|
|
|
277 |
|
|
|
1,084 |
|
Gain on amounts funded in respect of employee rights
upon retirement |
|
|
(44 |
) |
|
|
(81 |
) |
|
|
(109 |
) |
Loss (Gain) on sale of fixed assets |
|
|
2 |
|
|
|
|
|
|
|
(4 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable |
|
|
(1,062 |
) |
|
|
(388 |
) |
|
|
(1,571 |
) |
Increase in accounts payable and accruals |
|
|
296 |
|
|
|
254 |
|
|
|
4,678 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
$ |
(9,255 |
) |
|
$ |
(7,447 |
) |
|
$ |
(47,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
$ |
(4,226 |
) |
|
$ |
(1,904 |
) |
|
$ |
(13,419 |
) |
Investment grant received in respect of fixed assets |
|
|
|
|
|
|
|
|
|
|
38 |
|
Investment in restricted cash deposit |
|
|
|
|
|
|
|
|
|
|
(222 |
) |
Proceeds from sale of property and equipment |
|
|
73 |
|
|
|
|
|
|
|
85 |
|
Amounts funded in respect of employee rights upon
retirement |
|
|
(39 |
) |
|
|
(81 |
) |
|
|
(555 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(4,192 |
) |
|
$ |
(1,985 |
) |
|
$ |
(14,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Loan and convertible bridge loan received |
|
|
|
|
|
|
|
|
|
$ |
2,145 |
|
Repayment of loan |
|
|
|
|
|
|
|
|
|
|
(1,000 |
) |
Issuance of shares and warrants, net of issuance cost |
|
|
|
|
|
|
(56 |
) |
|
|
74,059 |
|
Exercise of options and warrants |
|
$ |
8 |
|
|
$ |
3 |
|
|
|
14,427 |
|
Merger with a wholly owned subsidiary of the
Company, net of issuance cost |
|
|
|
|
|
|
|
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
$ |
8 |
|
|
$ |
(53 |
) |
|
$ |
89,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES
ON CASH |
|
$ |
(25 |
) |
|
$ |
1,032 |
|
|
$ |
1,281 |
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(13,464 |
) |
|
|
(8,453 |
) |
|
|
29,132 |
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD |
|
|
42,596 |
|
|
|
61,813 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
29,132 |
|
|
$ |
53,360 |
|
|
$ |
29,132 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
PROTALIX BIOTHERAPEUTICS, INC.
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands, except share data)
(Unaudited)
(Continued) — 2
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Period from |
|
| |
|
|
|
|
|
|
|
|
|
December 27, |
|
| |
|
|
|
|
|
|
|
|
|
1993* |
|
| |
|
Six Months Ended June 30, |
|
|
through |
|
| |
|
2009 |
|
|
2008 |
|
|
June 30, 2009 |
|
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
|
|
|
|
|
|
|
|
$ |
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY INFORMATION
ON INVESTING AND FINANCING
ACTIVITIES NOT INVOLVING CASH FLOWS: |
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible bridge loan into shares |
|
|
|
|
|
|
|
|
|
$ |
1,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
$ |
1,327 |
|
|
$ |
752 |
|
|
$ |
1,327 |
|
|
|
|
|
|
|
|
|
|
|
Issuance cost not yet paid and accruals — other |
|
$ |
5 |
|
|
$ |
5 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
Issuance cost paid by a grant of options |
|
|
|
|
|
|
|
|
|
$ |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consultants’ and director credit balance
converted into shares |
|
|
|
|
|
|
|
|
|
$ |
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options granted to employees |
|
$ |
6 |
|
|
|
|
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
|
Incorporation date. See Note 1a. |
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
PROTALIX BIOTHERAPEUTICS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share data)
(Unaudited)
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
| |
1. |
|
Operation |
| |
| |
|
|
Protalix BioTherapeutics, Inc. (the “Company”), and Protalix Ltd. (“Protalix Ltd.”),
the Company’s wholly-owned subsidiary which was incorporated in Israel on December
27, 1993, are biopharmaceutical companies focused on the development and
commercialization of recombinant therapeutic proteins based on the Company’s
proprietary ProCellExtm protein expression system (“ProCellEx”). The
Company’s lead product development candidate is prGCD for the treatment of Gaucher
disease, which the Company is developing using its ProCellEx protein expression
system. Gaucher disease is a rare and serious lysosomal storage disorder in humans
with severe and debilitating symptoms. The Company is currently treating patients
in a phase III clinical trial of prGCD. In connection with the phase III clinical
trial, the Company is also engaged in a follow-on study which is evaluating the
safety and efficiency of prGCD in treatment-naïve patients of Gaucher disease. In
December 2008, we also initiated a clinical study evaluating the safety and efficacy
of switching Gaucher patients currently treated under the current standard of care
to treatment with prGCD. The switchover-study is not a prerequisite for approval of
prGCD. |
| |
| |
|
|
The Company has been in the development stage since its inception. Successful
completion of development program and its transition to normal operations is
dependent upon necessary regulatory approvals from the United States Food and Drug
Administration (the “FDA”) prior to selling its products within the United States,
and foreign regulatory approvals must be obtained to sell its products
internationally. There can be no assurance that the Company will receive regulatory
approval of any of its product candidates, and a substantial amount of time may pass
before the Company achieves a level of sales adequate to support the Company’s
operations, if at all. The Company will also incur substantial expenditures in
connection with the regulatory approval process and may need to raise additional
capital during the developmental period. Obtaining marketing approval will be
directly dependent on the Company’s ability to implement the necessary regulatory
steps required to obtain marketing approval in the United States and in other
countries, and on the success of the Company’s clinical trials. The Company cannot
predict the outcome of these activities. |
| |
2. |
|
Liquidity and Financial Resources |
| |
| |
|
|
The Company currently does not have sufficient resources to complete the
commercialization of any of its proposed products. 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 approximately the next 18 months, although no assurance can be given that it
will not need additional cash prior to such time. If there are unexpected increases
in general and administrative expenses and research and development expenses, the
Company may need to seek additional financing during the next 18 months. |
| |
b. |
|
General Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”) for interim financial information,
Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and
Reporting by Development Stage Enterprises”, and Article 10 of Regulation S-X under
the Securities Exchange Act of 1934. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial statements.
7
PROTALIX BIOTHERAPEUTICS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share data)
(Unaudited)
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES (Continued):
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 Company’s
Annual Report on Form 10-K for the year ended December 31, 2008, filed with the
Securities and Exchange Commission (the “Commission”). The comparative balance
sheet at December 31, 2008 has been derived from the audited financial statements at
that date, but does not include all of the information and notes required under GAAP
for complete financial statements.
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 $.001 per
share (the Common Stock”), outstanding for each period.
Shares of restricted Common Stock and the shares of Common Stock underlying
outstanding options of the Company were not included in the calculation of diluted
LPS because the effect would be anti-dilutive.
Diluted LPS does not include options and restricted shares of Common Stock in the
amount of 10,883,292 and 11,482,322 shares of Common Stock for the six months ended
June 30, 2008 and 2009, respectively, and 11,181,138 and 11,540,215 shares of Common
Stock for the three months ended June 30, 2008 and 2009, respectively.
| |
d. |
|
Newly issued and recently adopted Accounting Pronouncements |
| |
1. |
|
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB
28-1”). FSP FAS 107-1 and APB 28-1 require companies to disclose in interim
financial statements the fair value of financial instruments within the scope of
FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments.
However, companies are not required to provide in interim periods the disclosures
about the concentration of credit risk of all financial instruments that are
currently required in annual financial statements. The fair-value information
disclosed in the footnotes must be presented together with the related carrying
amount, making it clear whether the fair value and carrying amount represent assets
or liabilities and how the carrying amount relates to what is reported in the
balance sheet. FSP FAS 107-1 and APB 28-1 also require that companies disclose the
method or methods and significant assumptions used to estimate the fair value of
financial instruments and a discussion of changes, if any, in the method or methods
and significant assumptions during the period. The FSP shall be applied
prospectively and is effective for interim and annual periods ending after June 15,
2009. To the extent relevant, the Company adopted the disclosure requirements of
this pronouncement for the quarter ended June 30, 2009, in conjunction with the
adoption of FSP FAS 157-4, FSP FAS 115-2 and FAS 124-2. The adoption of the new
disclosure requirements did not have a material impact on the Company’s financial
statements. |
8
PROTALIX BIOTHERAPEUTICS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share data)
(Unaudited)
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES (Continued):
| |
2. |
|
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS
165”). SFAS 165 sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that occurred
after the balance sheet date. SFAS 165 will be effective for interim or annual
periods ending after June 15, 2009 and will be applied prospectively. The Company
adopted the provisions of FAS 165 for the quarter ended June 30, 2009. The
adoption of SFAS No. 165 did not have a material impact on the Company’s condensed
financial condition, results of operations or cash flows. |
| |
| |
3. |
|
In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles — A Replacement of FASB Statement No. 162” (“SFAS 168”). Statement
168 establishes the FASB Accounting Standards CodificationTM
(Codification) as the single source of authoritative U.S. generally accepted
accounting principles (U.S. GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. SFAS 168 and the Codification are effective for financial
statements issued for interim and annual periods ending after September 15, 2009.
When effective, the Codification will supersede all existing non-SEC accounting
and reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification will become nonauthoritative. Following SFAS
168, the FASB will not issue new standards in the form of Statements, FASB Staff
Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue
Accounting Standards Updates, which will serve only to: (a) update the
Codification; (b) provide background information about the guidance; and (c)
provide the bases for conclusions on the change(s) in the Codification. The
Company does not expect that the adoption of SFAS 168 to have a material impact on
the Company’s financial statements. |
NOTE 2 — STOCK TRANSACTIONS
| |
a. |
|
During the six months ended June 30, 2009, the Company issued 439,680 shares of
Common Stock in connection with the exercise of a total of 482,034 options by certain
officers and employees of the Company. The Company received aggregate cash proceeds
equal to approximately $14 in connection with the exercise of 116,078 options and
365,956 of such options were exercised on a “net-exercise” basis. |
| |
| |
b. |
|
On February 25, 2009, the Company’s board of directors approved the grant of
options to purchase 624,400 shares of Common Stock to its officers and employees with
an exercise price equal to $2.65 per share. The options vest as follows: |
| |
| |
|
|
(i) 504,000 of the options vest immediately upon the achievement of certain clinical and
operational performance milestones, which milestones must be achieved within one year of
the date of grant or the options will be forfeited. The Company recognized an expense
for a portion of such based on management’s assessment that it is probable that the
milestones will be achieved during the 12-month period commencing on the date of grant.
The options are exercisable over a 10-year period commencing on the date of grant. The
Company estimated the fair value of the options on the date of grant using the
Black-Scholes option-pricing model to be approximately $1,068, based on the following
weighted average assumptions: dividend yield of 0% for all years; expected volatility of
75.3%; risk-free interest rates of 2.95%; and expected life of 10 years. |
9
PROTALIX BIOTHERAPEUTICS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share data)
(Unaudited)
NOTE 2 — STOCK TRANSACTIONS (Continued):
| |
|
|
(ii) 120,400 of the options vest as follows: 25% within one year from the date of grant,
with the remainder vesting in 12 equal quarterly tranches over 36 months. The options
are exercisable over a 10-year period commencing on the date of grant. The Company
estimated the fair value of the options on the date of grant using the Black-Scholes
option-pricing model to be approximately $212, based on the following weighted average
assumptions: dividend yield of 0% for all years; expected volatility of 75.3%; risk-free
interest rates of 1.84%; and expected life of six years. The Company’s management
assumed the simplified method to reflect the expected life regarding these options. The
Company continued to use the simplified method in 2009 as the Company does not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate
expected term due to the limited period of time its equity shares have been publicly
traded. |
NOTE 3 — COMMITMENTS
| |
|
During the six months ended June 30, 2009, the Company entered into contracts with certain
third parties in connection with certain clinical services. The aggregate fees payable by
the Company during the life of the agreements are equal to approximately $2,733. |
NOTE 4 — FAIR VALUE OF FINANCIAL INSTRUMENTS
| |
|
The fair value of the financial instruments included in the working capital of the Company
is usually identical or close to their carrying value due to the short-term maturities of
these instruments. The amounts funded in respect of employee rights are stated at surrender
value which is close to their fair value. |
NOTE 5 — SUBSEQUENT EVENTS
The Company has performed an evaluation of subsequent events through August 3, 2009, which
is the date the financial statements were issued.
During July and August, 2009, the Company issued a total of 184,250 shares of Common
Stock in connection with the exercise of options to purchase 201,289 shares of
Common Stock by certain officers and employees of the Company. The Company received
aggregate cash proceeds equal to approximately $52 in connection with the exercise of
79,250 options and 122,039 of such options were exercised on a “net-exercise” basis.
10
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 condensed financial statements and the consolidated financial
statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our
Annual Report on Form 10-K for the year ended December 31, 2008. 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, 2008 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 ProCellExtm protein expression
system. Using our ProCellEx system, we are developing a pipeline of proprietary and biosimilar or
“generic” versions of recombinant therapeutic proteins based on our plant cell-based expression
technology that target large, established pharmaceutical markets and that rely upon known
biological mechanisms of action. Our initial commercial focus has been on complex therapeutic
proteins, including proteins for the treatment of genetic disorders, such as Gaucher disease and
Fabry disease. We believe our ProCellEx protein expression system will enable us to develop
proprietary recombinant proteins that are therapeutically equivalent or superior to existing
recombinant proteins currently marketed for the same indications. Because we are primarily
targeting biologically equivalent versions of highly active, well-tolerated and commercially
successful therapeutic proteins, we believe our development process is associated with relatively
less risk compared to other biopharmaceutical development processes for completely novel
therapeutic proteins.
Our lead product development candidate is prGCD for the treatment of Gaucher disease, which we
are developing using our ProCellEx protein expression system. Gaucher disease is a rare and
serious lysosomal storage disorder with severe and debilitating symptoms. prGCD is our proprietary
recombinant form of Glucocerebrosidase (GCD), an enzyme naturally found in human cells that is
mutated or deficient in patients with Gaucher disease. In July 2007, we reached an agreement with
the United States Food and Drug Administration, or the FDA, on the final design of our pivotal
phase III clinical trial of prGCD, through the FDA’s special protocol assessment (SPA) process. We
completed enrollment of patients in the phase III clinical trial in December 2008 and expect to
report results of the clinical trial in the second half of 2009. We anticipate submitting a New
Drug Application (NDA) for prGCD to the FDA and other comparable regulatory agencies in other
countries in the fourth quarter of 2009. In addition to our phase III clinical trial, we
initiated, during the third quarter of 2008, a double-blind, follow-on extension study as part of
our phase III clinical trial. We recently initiated a home care treatment program for patients
enrolled in the extension study. In December 2008, we also initiated a clinical study evaluating
the safety and efficacy of switching Gaucher patients currently treated under the current standard
of care to treatment with prGCD. The current standard of care for Gaucher patients is enzyme
replacement therapy with Cerezyme® which is produced by Genzyme Corporation and
currently the only approved enzyme replacement therapy for Gaucher disease. Enzyme replacement
therapy is a medical treatment in which recombinant enzymes are injected into patients in whom the
enzyme is lacking or dysfunctional. The switch-over study is not a prerequisite for approval of
prGCD. Lastly, in July 2009, following a request by the FDA, we submitted a treatment protocol in
order to address an expected shortage of the current enzyme replacement therapy approved for
Gaucher disease.
Although Gaucher disease is a relatively rare disease, it represents a large commercial market
due to the severity of the symptoms and the chronic nature of the disease. The annual worldwide
sales of Cerezyme were approximately $1.2 billion in 2008 according to public reports by Genzyme.
prGCD is a plant cell expressed version of the GCD enzyme, developed through our ProCellEx protein
expression system. prGCD has an amino acid, glycan and three-dimensional structure that is very
similar to its naturally-produced counterpart as well as to Cerezyme, which is a mammalian cell
expressed version of the same protein. We believe prGCD may prove more cost-effective than the
currently marketed alternative due to the cost benefits of expression through our ProCellEx protein
expression system. In addition, based on our laboratory testing, preclinical and clinical results,
we believe that prGCD may have the potential for increased potency and efficacy compared to the
existing enzyme replacement therapy for Gaucher disease, which may translate into lower dosages
and/or less frequent treatments.
11
In addition to prGCD, we are developing an innovative product pipeline using our ProCellEx
protein expression system. Our product pipeline currently includes, among other candidates,
therapeutic protein candidates for the treatment of Fabry disease, a rare, genetic lysosomal
disorder in humans, an acetylcholinesterase enzyme-based therapy for biodefense and intoxication
treatments and an additional undisclosed therapeutic protein, all of which are currently being
evaluated in animal studies. During the quarter ended March 31, 2009, we held a pre IND
(investigational new drug application) meeting with the FDA in connection with our
acetylcholinesterase enzyme-based therapy for biodefense applications and are currently performing
pre-clinical studies for this indication. We plan to file an investigational new drug application
(IND) with the FDA with respect to this product candidate during 2009 or early 2010 and to initiate
human clinical studies immediately thereafter. We believe that we may be able to reduce the
development risks and time to market for our product candidates as our product candidates are based
on well-understood proteins with known biological mechanisms of actions. We hold the worldwide
commercialization rights to our proprietary development candidates and we intend to establish an
internal, commercial infrastructure and targeted sales force to market prGCD and our other
products, if approved, in North America, the European Union and in other significant markets,
including Israel. In addition we are continuously evaluating potential strategic marketing
partnerships.
Since its inception in December 1993, Protalix Ltd. has generated significant losses in
connection with its research and development, including the clinical development of prGCD. At June
30, 2009, we had an accumulated deficit of $85.6 million. Since we do not generate revenue from
any of our product candidates, we expect to continue to generate losses in connection with the
continued clinical development of prGCD and the research and development activities relating to our
technology and other drug candidates. Such research and development activities are budgeted to
expand over time and will require further resources if we are to be successful. As a result, we
believe that our operating losses are likely to be substantial over the next several years. We
will need to obtain additional funds for the commercialization of our lead product, prGCD, and to
further develop the research and clinical development of our other programs.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our consolidated
financial statements appearing at the end of this Quarterly Report. We believe that the accounting
policies below are critical for one to fully understand and evaluate our financial condition and
results of operations.
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. 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, 2009 compared to the three months ended June 30, 2008
Research and Development Expenses
Research and development expenses were $6.2 million for the three months ended June 30, 2009,
an increase of $2.2 million, or 54%, from $4.0 million for the three months ended June 30, 2008.
The increase resulted primarily from the increase of $1.0 million in share based compensation,
mainly due to the forfeiture of certain options granted to a former officer during the second
quarter of 2008 and from the increase of approximately $900,000 in payments to consultants and
subcontractors and the cost of materials associated with research and development. Such increase
is mainly due to the costs incurred by us in connection with our phase III clinical trial of prGCD.
The increase was partially offset by grants of $1.5 million from the Office of the Chief
Scientist, or the
12
OCS, during the three months ended June 30, 2009, an increase of approximately $359,000
compared to grants equal to $1.1 million received from the OCS during the three months ended June
30, 2008.
We expect research and development expenses to continue to increase as we enter into a more
advanced stage of clinical trials for our product candidates, especially with respect to the
anticipated continued progress in our phase III clinical trial of prGCD, the extension study that
we initiated in the third quarter of 2008 for patients that have completed such trial and chose to
continue the treatment and with the switch over study we initiated in the fourth quarter of 2008
evaluating the safety and efficacy of switching Gaucher patients currently treated under the
current standard of care to treatment with prGCD.
General and Administrative Expenses
General and administrative expenses were $1.2 million for the three months ended June 30,
2009, a decrease of $845,000, or approximately 42%, from $2.0 million for the three months ended
June 30, 2008. The decrease resulted primarily from the decrease of $311,000 in salaries and
related expenses and the decrease of approximately $331,000 in share based compensation due to
certain stock options that were fully expensed during 2008 and, consequently, were not expensed in
the three months ended June 30, 2009.
Financial Expenses and Income
Financial income was $446,000 for the three months ended June 30, 2009, a decrease of $223,000
or approximately 33%, from $669,000 for the three months ended June 30, 2008. The expense resulted
primarily from the devaluation of the US dollar against the New Israeli Shekel, the NIS, and
significantly lower interest rates available for deposits during the period.
Six months ended June 30, 2009 compared to the six months ended June 30, 2008
Research and Development Expenses
Research and development expenses were $11.3 million for the six months ended June 30, 2009,
an increase of $1.6 million, or 17%, from $9.7 million for the six months ended June 30, 2008. The
increase resulted primarily from the increase of $1.3 million in costs related to consulting and
subcontractors associated with research and development incurred by us in connection with our phase
III clinical trial of prGCD. The increase was partially offset by grants of $2.8 million from the
OCS, during the six months ended June 30, 2009, an increase of approximately $285,000 compared to
grants equal to $2.5 million received from the OCS during the six months ended June 30, 2008.
We expect research and development expenses to continue to increase as we enter into a more
advanced stage of clinical trials for our product candidates, especially with respect to the
anticipated continued progress in our phase III clinical trial of prGCD, the extension study that
we initiated in the third quarter of 2008 for patients that have completed such trial and chose to
continue the treatment and with the switch over study we initiated in the fourth quarter of 2008
evaluating the safety and efficacy of switching Gaucher patients currently treated under the
current standard of care to treatment with prGCD.
General and Administrative Expenses
General and administrative expenses were $2.4 million for the six months ended June 30, 2009,
a decrease of $1.6 million, or approximately 40%, from $4.0 million for the six months ended June
30, 2008. The decrease resulted primarily from a decrease of approximately $1.0 million in share
based compensation due to certain stock options that were fully expensed during 2008 and,
consequently, were not expensed in the six months ended June 30, 2009.
Financial Expenses and Income
Financial income was $298,000 for the six months ended June 30, 2009, a decrease of $1.5
million, or approximately 84%, from $1.8 million for the six months ended June 30, 2008. The
expense resulted primarily from
13
the devaluation of the US dollar against the NIS and significantly lower interest rates
available for deposits during the period.
Liquidity and Capital Resources
Sources of Liquidity
As a result of our significant research and development expenditures and the lack of any
approved products to generate product sales revenue, we have not been profitable and have generated
operating losses since our inception. To date, we have funded our operations primarily with
proceeds equal to $31.3 million from the private sale of our shares of common stock and from sales
of convertible preferred and ordinary shares of Protalix Ltd., and an additional $14.4 million in
connection with the exercise of warrants issued in connection with the sale of such ordinary
shares, through December 31, 2007. In addition, on October 25, 2007, we generated gross proceeds
of $50 million in connection with an underwritten public offering of our common stock. We believe
that the funds currently available to us as are sufficient to satisfy our capital needs for
approximately the next 18 months.
Cash Flows
Net cash used in operations was $9.3 million for the six months ended June 30, 2009. The net
loss for the six months ended June 30, 2008 of $10.6 million was partially offset by $1.2 million
of non-cash share-based compensation and $929,000 of depreciation expense. In addition, net loss
was partially offset by an increase of $1.1 million due to an increase in accounts receivable. Net
cash used in investing activities for the six months ended June 30, 2009 was $4.2 million and
consisted primarily of purchases of property and equipment. Net cash provided from financing
activities for the six months ended June 30, 2009 was approximately $8,000, consisting of exercise
price paid in connection with certain exercise of stock options.
Net cash used in operations was $7.4 million for the six months ended June 30, 2008. The net
loss for the six months ended June 30, 2008 of $9.3 million was partially offset by $2.2 million of
non-cash share-based compensation. Net cash used in investing activities for the six months ended
June 30, 2008 was $2.0 million and consisted primarily of purchases of property and equipment. Net
cash used in financing activities for the six months ended June 30, 2008 was $53,000, consisting of
expenses paid during such period in connection with the October 2007 underwritten offering.
Future Funding Requirements
We expect to incur losses from operations for the foreseeable future. We expect to incur
increasing research and development expenses, including expenses related to the hiring of personnel
and additional clinical trials. We expect that general and administrative expenses will also
increase as we establish the initial infrastructure necessary in connection with the potential
launch of prGCD, our lead product candidate, expand our finance and administrative staff, add
infrastructure, and incur additional costs related to being a public company in the United States,
including the costs of directors’ and officers’ insurance, investor relations programs and
increased professional fees. In addition, we are upgrading our manufacturing facility that would
meet the FDA requirements and the expected market demand for the manufacture of our product
candidates, which will increase our capital expenditures significantly.
We believe that our existing cash and cash equivalents and short-term investments will be
sufficient to enable us to fund our operating expenses and capital expenditure requirements for
approximately the next 18 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 and the markets in which we intend
to operate, 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 factors, including the progress and
results of our clinical trials, the duration and cost of discovery and preclinical development and
laboratory testing and clinical trials for our product candidates, the timing and outcome of
regulatory review of our product candidates, the costs
14
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 certain pre
marketing activities, product marketing, sales and distribution.
We will need to finance our future cash needs through public or private equity offerings, debt
financings, or corporate collaboration and licensing arrangements. We currently do not have any
commitments for future external funding. We may need to raise additional funds more quickly if one
or more of our assumptions prove to be incorrect or if we choose to expand our product development
or our pre marketing 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. The sale of additional equity or debt securities will likely result in dilution to our
shareholders. The incurrence of indebtedness would result in increased fixed obligations and could
also result in covenants that would restrict our operations. Additional equity or debt financing,
grants or corporate collaboration and licensing arrangements may not be available on acceptable
terms, if at all. If adequate funds are not available, we may be required to delay, reduce the
scope of or eliminate our research and development programs, reduce our planned commercialization
efforts or obtain funds through arrangements with collaborators or others that may require us to
relinquish rights to certain product candidates that we might otherwise seek to develop or
commercialize independently.
Effects of Inflation and Currency Fluctuations
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We
do not believe that inflation has had a material effect on our results of operations during the six
months ended June 30, 2009 or the six months ended June 30, 2008.
Currency fluctuations could affect us by increased or decreased costs mainly for goods and
services acquired outside of Israel. We do not believe currency fluctuations have had a material
effect on our results of operations during the six months ended June 30, 2009 or the six months
ended June 30, 2008.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of each of June 30, 2009 and June 30, 2008.
Recently Issued Accounting Pronouncements
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair
Value of Financial Instruments,” or FSP FAS 107-1 and APB 28-1. FSP FAS 107-1 and APB 28-1 require
companies to disclose in interim financial statements the fair value of financial instruments
within the scope of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments.
However, companies are not required to provide in interim periods the disclosures about the
concentration of credit risk of all financial instruments that are currently required in annual
financial statements. The fair-value information disclosed in the footnotes must be presented
together with the related carrying amount, making it clear whether the fair value and carrying
amount represent assets or liabilities and how the carrying amount relates to what is reported in
the balance sheet. FSP FAS 107-1 and APB 28-1 also requires that companies disclose the method or
methods and significant assumptions used to estimate the fair value of financial instruments and a
discussion of changes, if any, in the method or methods and significant assumptions during the
period. The FSP shall be applied prospectively and is effective for interim and annual periods
ending after June 15, 2009. To the extent relevant, we adopted the disclosure requirements of this
pronouncement for the quarter ended June 30, 2009, in conjunction with the adoption of FSP FAS
157-4, FSP FAS 115-2 and FAS 124-2. The adoption of the new disclosure requirements did not have a
material impact on our financial statements.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” or SFAS 165. SFAS 165 sets
forth the period after the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that occurred after the
15
balance sheet date. SFAS 165 will be effective for interim or annual periods ending after
June 15, 2009 and will be applied prospectively. We adopted the provisions of FAS 165 for the
quarter ended June 30, 2009. The adoption of SFAS No. 165 did not have a material impact on our
condensed financial condition, results of operations or cash flows.
In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles — A Replacement of FASB Statement No. 162,”
or SFAS 168. Statement 168 establishes the FASB Accounting Standards CodificationTM
(Codification) as the single source of authoritative U.S. generally accepted accounting principles
(U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are also sources of
authoritative U.S. GAAP for SEC registrants. SFAS 168 and the Codification are effective for
financial statements issued for interim and annual periods ending after September 15, 2009. When
effective, the Codification will supersede all existing non-SEC accounting and reporting standards.
All other nongrandfathered non-SEC accounting literature not included in the Codification will
become nonauthoritative. Following SFAS 168, the FASB will not issue new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will
issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b)
provide background information about the guidance; and (c) provide the bases for conclusions on the
change(s) in the Codification. We do not expect that the adoption of SFAS 168 to have a material
impact on our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Currency Exchange Risk
The currency of the primary economic environment in which our operations are conducted is the
dollar. We are currently in the development stage with no significant source of revenues;
therefore we consider the currency of the primary economic environment to be the currency in which
we expend cash. Approximately 50% of our expenses and capital expenditures are incurred in
dollars, and a significant source of our financing has been provided in U.S. dollars. Since the
dollar is the functional currency, monetary items maintained in currencies other than the dollar
are remeasured using the rate of exchange in effect at the balance sheet dates and non-monetary
items are remeasured at historical exchange rates. Revenue and expense items are remeasured at the
average rate of exchange in effect during the period in which they occur. Foreign currency
translation gains or losses are recognized in the statement of operations.
Approximately 35% of our costs, including salaries, expenses and office expenses, are incurred
in NIS. Inflation in Israel may have the effect of increasing the U.S. dollar cost of our
operations in Israel. If the U.S. dollar declines in value in relation to the NIS, it will become
more expensive for us to fund our operations in Israel. A revaluation of 1% of the NIS will affect
our income before tax by less than 1%. The exchange rate of the U.S. dollar to the NIS, based on
exchange rates published by the Bank of Israel, was as follows:
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Six months ended |
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Year ended |
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June 30, |
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December 31, |
| |
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2009 |
|
2008 |
|
2008 |
Average rate for period |
|
|
4.0678 |
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3.5218 |
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|
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3.5878 |
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Rate at period end |
|
|
3.9190 |
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3.3520 |
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|
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3.8020 |
|
To date, we have not engaged in hedging transactions. In the future, we may enter into
currency hedging transactions to decrease the risk of financial exposure from fluctuations in the
exchange rate of the U.S. dollar against the NIS. These measures, however, may not adequately
protect us from material adverse effects due to the impact of inflation in Israel.
Interest Rate Risk
Our exposure to market risk is confined to our cash and cash equivalents. We consider all
short term, highly liquid investments, which include short-term deposits with original maturities
of three months or less from
16
the date of purchase, that are not restricted as to withdrawal or use and are readily
convertible to known amounts of cash, to be cash equivalents. The primary objective of our
investment activities is to preserve principal while maximizing the interest income we receive from
our investments, without increasing risk. We invest any cash balances primarily in bank deposits
and investment grade interest-bearing instruments. We are exposed to market risks resulting from
changes in interest rates. We do not use derivative financial instruments to limit exposure to
interest rate risk. Our interest gains may decline in the future as a result of changes in the
financial markets.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.
The controls evaluation was conducted under the supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer. Disclosure controls
and procedures are controls and procedures designed to reasonably assure that information required
to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form
10-Q, is recorded, processed, summarized and reported within the time periods specified in the
Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably
assure that such information is accumulated and communicated to our management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
Based on the controls evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our
disclosure controls and procedures were effective to provide reasonable assurance that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified by the Commission, and that material information
relating to our company and our consolidated subsidiary is made known to management, including the
Chief Executive Officer and Chief Financial Officer, particularly during the period when our
periodic reports are being prepared.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures or our internal control over financial reporting
will prevent or detect all error and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
will be met. The design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within a company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people or by management override of
the controls. The design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with
policies or procedures.
Changes in internal controls
There were no changes to our internal controls over financial reporting (as defined in Rules
13a-15f and 15d-15f under the Exchange Act) that occurred during the period ended June 30, 2009
that has materially affected, or that is reasonably likely to materially affect, our internal
control over financial reporting.
17
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are not involved in any material legal proceedings.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the six months ended June 30,
2009, other than the issuance of 439,680 shares of common stock, in the aggregate, in connection
with the exercise by certain of our officers and employees of outstanding stock options to purchase
482,034 shares of common stock granted under our 2006 Stock Incentive Plan. We received cash
proceeds equal to approximately $14,000 in connection with the exercise of 116,078 options and
365,956 options were exercised on a “net-exercise” basis. The shares were issued pursuant to
exemptions from registration under Section 4(2) of the Securities Act of 1933, or the Securities
Act.
Use of Proceeds
The effective date of our first registration statement, filed on Form S-3 under the Securities
Act, which was accompanied by a registration statement on Form S-3 filed pursuant to Rule 462(b)
under the Securities Act (Nos. 333-144801 and 333-146919), relating to a public offering of our
common stock, was September 26, 2007 and the offering date was October 25, 2007. The sole
book-running manager of the offering was UBS Investment Bank, and CIBC World Markets (now
Oppenheimer) served as the co-manager. We sold 10,000,000 shares of common stock at a price per
share of $5.00 in the offering. Our aggregate net proceeds (after underwriting discounts and
expenses) amounted to approximately $46.0 million. The offering closed on October 30, 2007.
The amount of the underwriting discount paid by us was $3.5 million and the expenses of the
offering, not including the underwriting discount, were approximately $810,000.
Between October 30, 2007 and June 30, 2009, we have used approximately $30.8 million of the
net proceeds to fund our operating activities, including activities related to the development of
our clinical and preclinical product candidates and for working capital, capital expenditures and
other general corporate purposes. During the quarter ended June 30, 2009, our research and
development expenses comprised approximately 80% of our operating expenses. We have deposited the
net proceeds of the offering in accordance with our investment policy in short-term bank-deposits.
There has been no material change in our planned use of proceeds from our public offering as
described in our registration statement.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
18
Item 6. Exhibits
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| Exhibit |
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| Number |
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Exhibit Description |
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Method of Filing |
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3.1
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Amended and Restated Articles
of Incorporation of the
Company
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Incorporated by
reference to the
Company’s Registration
Statement on Form S-4
filed on March 26,
1998, SEC File No.
333-48677 |
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3.2
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Article of Amendment to
Articles of Incorporation
dated June 9, 2006
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Incorporated by
reference to the
Company’s Registration
Statement on Form 8-A
filed on March 9,
2007, SEC File No.
001-33357 |
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3.3
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Article of Amendment to
Articles of Incorporation
dated December 13, 2006
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Incorporated by
reference to the
Company’s Registration
Statement on Form 8-A
filed on March 9,
2007, SEC File No.
001-33357 |
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3.4
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Article of Amendment to
Articles of Incorporation
dated December 26, 2006
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Incorporated by
reference to the
Company’s Registration
Statement on Form 8-A
filed on March 9,
2007, SEC File No.
001-3335 |
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3.5
|
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Article of Amendment to
Articles of Incorporation
dated February 26, 2007
|
|
Incorporated by
reference to the
Company’s Registration
Statement on Form 8-A
filed on March 9,
2007, SEC File No.
001-33357 |
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3.6
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Amended and Restated By-Laws
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Incorporated by
reference to the
Company’s Quarterly
Report on Form 10-Q
filed on August 8,
2008 |
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31.1
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Certification of Chief
Executive Officer pursuant to
Rule 13a-14(a) as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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Filed herewith |
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|
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31.2
|
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Certification of Chief
Financial Officer pursuant to
Rule 13a-14(a) as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
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|
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32.1
|
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18 U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002, Certification of
Chief Executive Officer
|
|
Filed herewith |
|
|
|
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32.2
|
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18 U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002, Certification of
Chief Financial Officer
|
|
Filed herewith |
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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PROTALIX BIOTHERAPEUTICS, INC.
(Registrant)
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| Date: August 3, 2009 |
By: |
/s/ David Aviezer
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David Aviezer, Ph.D. |
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President and Chief Executive Officer
(Principal Executive Officer) |
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| Date: August 3, 2009 |
By: |
/s/ Yossi Maimon
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Yossi Maimon |
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Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer) |
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20