Protalix BioTherapeutics(PLX) - 2020 Q4 - Annual Report

Part I Business Protalix BioTherapeutics develops and commercializes recombinant therapeutic proteins using its proprietary ProCellEx® plant cell-based system, with Elelyso® marketed and PRX-102 under FDA Priority Review Our ProCellEx Platform ProCellEx is a proprietary plant cell-based protein expression system, FDA-approved for Elelyso®, offering scalable manufacturing and no viral contamination risk - ProCellEx is a proprietary platform for manufacturing recombinant proteins using plant cell-based expression in suspension, which avoids the use of mammalian components and the associated risk of viral contamination[17][18] - The system utilizes genetically engineered plant cells, such as carrot and tobacco, grown in custom-designed, sterile, disposable polyethylene bioreactors, allowing for rapid and low-cost horizontal scale-up[21][22] Our Marketed Product and Clinical Pipeline The company's portfolio includes Elelyso® for Gaucher disease and a clinical pipeline led by PRX-102 for Fabry disease, currently under FDA Priority Review Product Pipeline Status | Product Candidate | Indication | Development Stage | | :--- | :--- | :--- | | Elelyso® | Gaucher Disease | Marketed | | pegunigalsidase alfa (PRX-102) | Fabry Disease | BLA Submitted (FDA Priority Review) | | alidornase alfa (PRX-110) | Respiratory Diseases | Phase IIa completed; Licensed to SarcoMed | | uricase (PRX-115) | Refractory Gout | Preclinical | | Long Acting DNase (PRX-119) | NETs Related Diseases | Preclinical | - Elelyso® is approved and marketed in 23 countries for Gaucher disease. Sales in Brazil, marketed as BioManguinhos alfataliglicerase, generated $8.0 million in 2020[23][47] - The FDA accepted the Biologics License Application (BLA) for PRX-102 for Fabry disease, granting it Priority Review with a PDUFA action date of April 27, 2021. However, FDA inspections of manufacturing facilities may be delayed due to COVID-19 travel restrictions[24][38][54] - The company entered an exclusive worldwide license agreement with SarcoMed for alidornase alfa (PRX-110) for use in human respiratory diseases, including sarcoidosis and pulmonary fibrosis[29][34] Intellectual Property The company holds over 90 global patents and 35 pending applications protecting its ProCellEx technology and products, serving as collateral for 2021 convertible notes - The company holds a global portfolio of over 90 patents and has more than 35 pending patent applications to protect its technology, products, and methods of use[97] - In 2020, the company secured new patents in Europe for its "Large Scale Disposable Bioreactor" and in Israel and the U.S. for "Stabilized Alpha-Galactosidase and Uses Thereof" (related to PRX-102)[98] - The company's material assets, primarily its intellectual property, are pledged as collateral to secure its outstanding 7.50% convertible promissory notes due in 2021[101] Agreements and Partnerships Protalix maintains strategic partnerships with Pfizer for Elelyso® and Chiesi for PRX-102, involving significant upfront payments, potential milestones, and royalties - Pfizer holds the exclusive global rights to Elelyso (excluding Brazil) under an amended agreement where Pfizer covers 100% of costs and retains 100% of revenue, while Protalix serves as the drug substance manufacturer for a 10-year period[116][117] - The company has two exclusive global agreements with Chiesi for PRX-102, covering ex-U.S. and U.S. markets. These agreements include $50 million in upfront payments, up to $45 million in development cost reimbursements, over $1.0 billion in potential milestones, and tiered royalties ranging from 15% to 40%[120][121][122] - The company commercializes Elelyso in Brazil as BioManguinhos alfataliglicerase through an agreement with Fiocruz. However, Fiocruz has not met certain purchase commitments, and discussions are ongoing to address this[118][119] Manufacturing and Government Regulations The company operates an FDA-approved cGMP manufacturing facility in Israel and is subject to extensive global regulations, benefiting from Israeli government tax and R&D programs - The manufacturing facility in Carmiel, Israel, is FDA-approved as a multi-product facility and has sufficient capacity for current and expected commercial and clinical needs, including the anticipated launch of PRX-102[123][124] - The company is subject to extensive regulation by the FDA and other global authorities, covering preclinical studies, clinical trials (Phase I-III), manufacturing (cGMP), and post-approval requirements[129][132][135] - The company's Israeli facility has "Approved Enterprise" status, making it eligible for a 10-year tax exemption period once it generates taxable income. It also receives R&D grants from NATI, which require royalty payments on future sales of funded products[126][182][192] Risk Factors The company faces significant risks including PRX-102 approval delays, clinical and regulatory uncertainties, dependence on key products and partners, financial instability, and geopolitical risks in Israel - A key risk is the potential delay or failure to obtain FDA approval for PRX-102 by the April 27, 2021 PDUFA date, as COVID-19 travel restrictions may prevent the FDA from conducting required pre-license inspections of manufacturing facilities[213] - The company's financial stability is at risk due to its history of net losses, significant indebtedness from $57.9 million in convertible notes due 2021, and the need to raise additional capital to fund operations and clinical trials[278][285] - Heavy reliance on the commercial success of PRX-102 and the performance of collaboration partners like Chiesi and Pfizer creates significant business risk. Failure in these areas would materially harm the company's financial condition[238][243] - Operations are concentrated in Israel, exposing the company to risks from political, economic, and military instability, as well as restrictions tied to Israeli government R&D grants that limit the transfer of technology and manufacturing outside of Israel[327][334] Properties The company's primary operations, including manufacturing and R&D, are in a leased Carmiel, Israel facility, with a corporate office in Hackensack, New Jersey - The main facility in Carmiel, Israel, houses manufacturing, R&D labs, and offices, totaling approximately 58,900 sq/ft of utilized space, with an additional 14,500 sq/ft available for future expansion[357] Legal Proceedings The company is not currently involved in any material legal proceedings - As of the report date, the company is not a party to any material legal proceedings[358] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American and TASE, with details on equity compensation plan securities and outstanding options Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to be Issued Upon Exercise of Outstanding Options | Weighted Average Exercise Price of Outstanding Options | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by Stockholders | 2,551,650 | $5.30 | 1,493,626 | Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues increased to $62.9 million in 2020, net loss narrowed to $6.5 million, and recent financing activities strengthened liquidity for future operations and debt repayment Financial Performance Summary (Years ended Dec 31) | Metric (in millions) | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $62.9 | $54.7 | +15.0% | | - Revenues from Selling Goods | $16.2 | $15.9 | +1.9% | | - Revenues from License and R&D | $46.7 | $38.8 | +20.4% | | R&D Expenses, Net | $38.2 | $44.6 | -14.3% | | Net Loss | $(6.5) | $(18.3) | +64.5% improvement | - The increase in 2020 revenue was primarily due to a $7.9 million rise in license and R&D service revenue from the Chiesi agreements, reflecting an updated cost estimation for completing clinical trials[411] - R&D expenses decreased by $6.4 million in 2020 compared to 2019, mainly because two of the three Phase III trials for PRX-102 were completed and costs for the ongoing BALANCE study were reduced[413] - As of December 31, 2020, the company had $38.5 million in cash and short-term deposits. Subsequent financing activities in early 2021, including a public offering and ATM sales, raised gross proceeds of approximately $49.0 million[418] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is currency exchange rate fluctuations, as 43% of costs are in NIS while its functional currency is USD - The company's main market risk is currency fluctuation, as approximately 43% of its costs are in New Israeli Shekels (NIS) while its functional currency is the U.S. dollar[429][432] Financial Statements and Supplementary Data This section presents audited consolidated financial statements and the independent auditor's report, highlighting revenue recognition for Chiesi agreements as a critical audit matter Consolidated Balance Sheet Data (as of Dec 31) | Metric (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Assets | | | | Cash, cash equivalents, and short-term deposits | $38,545 | $17,792 | | Total Current Assets | $55,723 | $32,479 | | Total Assets | $67,934 | $45,392 | | Liabilities & Capital Deficiency | | | | Total Current Liabilities | $86,474 | $40,175 | | Total Liabilities | $94,971 | $115,714 | | Total Capital Deficiency | $(27,037) | $(70,322) | - The independent auditor, Kesselman & Kesselman (PwC), identified revenue recognition for the license and R&D services performance obligation as a critical audit matter, citing the significant management judgment required to estimate total costs to completion[487][489] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes reported - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[440] - Management assessed internal control over financial reporting based on the COSO framework and concluded that it was effective as of December 31, 2020[443] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information on directors, executive officers, corporate governance, compensation, and principal accountant fees is incorporated by reference from the 2021 Proxy Statement - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, and principal accountant fees is incorporated by reference from the registrant's 2021 Proxy Statement[451][452][453][454][455] Part IV Exhibits and Financial Statement Schedules This section provides an index of exhibits and financial statement schedules filed with the 10-K report, including key corporate and contractual documents - This section contains the index to the Consolidated Financial Statements and a list of all exhibits filed with the 10-K report[457][458]