Protalix BioTherapeutics(PLX) - 2021 Q4 - Annual Report

Part I Business Protalix BioTherapeutics leverages its ProCellEx® platform for therapeutic protein production, marketing Elelyso® and advancing PRX-102 for Fabry disease - The company's core technology is the ProCellEx® platform, a plant cell-based system for producing recombinant therapeutic proteins, making it the first and only company to gain FDA approval for a protein produced this way[13][19] - The lead product candidate is pegunigalsidase alfa (PRX-102) for Fabry disease, which is in advanced clinical stages, with other pipeline products including PRX-115 for gout and PRX-119 for NETs-related diseases[17][27] - Elelyso®, for Gaucher Disease, is the company's first and only approved product, marketed globally through an exclusive licensing agreement with Pfizer (excluding Brazil), and in Brazil as BioManguinhos alfataliglicerase through an agreement with Fiocruz[26][48] 2021 Revenue from Elelyso® in Brazil | Region | Product Name | 2021 Sales (in millions) | Source | | :--- | :--- | :--- | :--- | | Brazil | BioManguinhos alfataliglicerase | $6.4 | Fiocruz (Brazilian MoH) | Product Pipeline Overview The company's pipeline is led by PRX-102 for Fabry disease, with other candidates in preclinical or early clinical development for various indications Product Development Pipeline Status | Product Candidate | Indication | Development Stage | | :--- | :--- | :--- | | pegunigalsidase alfa (PRX-102) | Fabry Disease | Marketing Application | | alidornase alfa (PRX-110) | Various Respiratory Indications | Phase 2 Completed | | uricase (PRX-115) | Refractory Gout | Preclinical | | Long Acting (LA) DNase I (PRX-119) | NETs Related Diseases | Preclinical | Pegunigalsidase alfa (PRX-102) for Fabry Disease PRX-102 for Fabry disease completed Phase III, with an EMA MAA submitted and BLA resubmission to the FDA planned for H2 2022 after a CRL - A Marketing Authorization Application (MAA) for PRX-102 was submitted to and validated by the European Medicines Agency (EMA) on February 7, 2022[29][38][53] - The U.S. FDA issued a Complete Response Letter (CRL) for the PRX-102 BLA on April 28, 2021, citing the inability to conduct a required manufacturing facility inspection and noting the recent full approval of Fabrazyme®, but not raising safety or efficacy concerns[30][46][56] - Following a Type A meeting with the FDA, the company plans to resubmit the BLA with a data package including the final two-year analyses of the BALANCE study, which has the potential to support a traditional approval[31][57][72] - The Phase III BRIGHT study showed that PRX-102 administered at 2 mg/kg every four weeks was well tolerated and maintained disease stability in patients switched from other ERTs, suggesting a reduced treatment burden[80][85] Intellectual Property The company protects its ProCellEx® technology and products with over 80 granted patents and 30 pending applications, securing its 2024 Notes - The company holds a global portfolio of over 80 patents and has more than 30 pending patent applications to protect its technology, products, and methods[102] - The company's outstanding 2024 Notes are secured by perfected liens on all material assets, primarily consisting of its intellectual property[105] Agreements and Partnerships Protalix partners with Pfizer for Elelyso® and Chiesi for PRX-102, with the latter offering potential for over $1.0 billion in milestones and tiered royalties - The company has two exclusive global licensing and supply agreements with Chiesi for PRX-102, with potential revenue from up to $45 million in development cost reimbursements, over $1.0 billion in milestone payments, and tiered royalties from 15% to 40%[125][126][127] - In May 2021, Chiesi made a $10.0 million payment in exchange for a $25.0 million reduction in a long-term regulatory milestone, providing Protalix with near-term capital[45][128] - Under the Amended Pfizer Agreement, Pfizer holds global rights to Elelyso (ex-Brazil), retains 100% of revenue, and reimburses 100% of direct costs, with Protalix continuing to supply the drug substance to Pfizer[120] Government Regulations and Programs The company is subject to extensive FDA and international regulations, benefiting from PRX-102's Fast Track and Orphan Drug designations, and receives Israeli government grants with associated obligations - The FDA granted Fast Track designation to PRX-102 in January 2018 to facilitate its development and expedite its review[58][155] - The European Commission granted Orphan Drug Designation for PRX-102 in December 2017, which could provide 10 years of market exclusivity in the EU if approved[59][151] - The company's Israeli subsidiary has received grants from the National Authority for Technological Innovation (NATI) totaling approximately $53.2 million, with a contingent liability to repay up to $38.6 million through royalties of 3-6% on revenues from NATI-funded projects[198] - Receiving NATI grants restricts the company from manufacturing products or transferring technology outside of Israel without special approval, which may require increased royalty payments[199][200] Risk Factors Protalix faces substantial risks including regulatory uncertainty for PRX-102, financial instability, dependence on key partnerships, and operational challenges compounded by its Israeli base - A primary risk is the uncertainty of U.S. regulatory approval for PRX-102 following the FDA's Complete Response Letter (CRL), which requires a facility inspection delayed by COVID-19 and must address the full approval of a competing therapy, Fabrazyme®[219][225] - The company is heavily dependent on the successful commercialization of its lead candidate, pegunigalsidase alfa (PRX-102), and any failure or significant delay would materially harm the business[256][259] - Financial stability is a risk, as the company has a limited operating history, is not currently profitable, and will need to raise additional capital, which may not be available on favorable terms[255][309][311] - The company's outstanding 2024 Notes are secured by all of its assets, including intellectual property, where a default could lead to foreclosure on these critical assets[297][335] - Operations are concentrated in Israel, exposing the company to potential political, economic, and military instability that could disrupt research, development, and manufacturing[349] Properties The company's primary operations, including headquarters and manufacturing, are in a leased facility in Carmiel, Israel, with a U.S. corporate office in Hackensack, New Jersey - The main facilities, including manufacturing, R&D, and offices, are located in a leased property in Carmiel, Israel, with the lease running until 2026 and an option to extend for another five years[379] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is dual-listed on the NYSE American and TASE under 'PLX', with equity compensation plan details provided as of December 31, 2021 - The company's common stock is dual-listed on the NYSE American and the Tel Aviv Stock Exchange under the ticker symbol "PLX"[384] Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise of Outstanding Options | Weighted Average Exercise Price ($) | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by Stockholders | 2,259,020 | $4.42 | 1,786,256 | Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues decreased to $38.4 million in 2021, leading to a $27.6 million net loss, despite improved liquidity from a $40.2 million public offering and debt restructuring Financial Performance Summary (2021 vs. 2020) | Metric | 2021 (in millions) | 2020 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $38.4 | $62.9 | -39% | | - Revenues from Selling Goods | $16.7 | $16.2 | +3% | | - Revenues from License & R&D | $21.6 | $46.7 | -54% | | Cost of Goods Sold | $16.3 | $10.9 | +50% | | R&D Expenses, Net | $29.7 | $38.2 | -22% | | SG&A Expenses | $12.7 | $11.1 | +14% | | Net Loss | $(27.6) | $(6.5) | Increased Loss | - The decrease in total revenue was primarily due to a $25.1 million (54%) decrease in revenues from license and R&D services recognized from the Chiesi Agreements, resulting from lower costs incurred during the year[436] - The company strengthened its balance sheet in 2021 by raising approximately $40.2 million from a public offering and $8.8 million from its ATM program[444] - In August 2021, the company exchanged $54.65 million of its 2021 Notes for $28.75 million of new 2024 Notes and $25.90 million in cash, extending its debt maturity[390][445] - The company ended 2021 with $39.0 million in cash and cash equivalents and believes these funds are sufficient to meet capital needs for at least the next 12 months[443][451] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are currency exchange rate fluctuations, with 31% of costs in NIS, and interest rate risk on cash and equivalents, with no current hedging strategies employed - The company's primary market risk is currency exchange risk, as its functional currency is the U.S. dollar, but approximately 31% of its costs are incurred in New Israeli Shekels (NIS)[462][464] - Interest rate risk is limited to cash and cash equivalents, with the main objective being principal preservation, and the company does not use derivative financial instruments to hedge this risk[465] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes in the fourth quarter - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective[471] - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[474] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information regarding directors, executive officers, corporate governance, compensation, and principal accountant fees is incorporated by reference from the company's 2022 Proxy Statement - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, and principal accountant fees and services is incorporated by reference from the registrant's 2022 Proxy Statement[481][482][483][484][485] Part IV Exhibits and Financial Statement Schedules This section provides an index to the consolidated financial statements and a comprehensive list of all exhibits filed with the Form 10-K report - This section provides an index to the consolidated financial statements and a list of all exhibits filed with the Form 10-K, including material agreements and corporate governance documents[487][488] Financial Statements Consolidated Balance Sheets As of December 31, 2021, total assets increased to $73.7 million, while total liabilities decreased to $79.7 million due to debt restructuring, improving capital deficiency Consolidated Balance Sheet Highlights (as of Dec 31) | Account (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $38,985 | $18,265 | | Total current assets | $61,666 | $55,723 | | Total assets | $73,665 | $67,934 | | Liabilities & Capital | | | | Total current liabilities | $33,176 | $86,474 | | Total long term liabilities | $46,525 | $8,497 | | Total liabilities | $79,701 | $94,971 | | Total capital deficiency | $(6,036) | $(27,037) | Consolidated Statements of Operations For the year ended December 31, 2021, total revenues decreased to $38.4 million, resulting in an operating loss of $20.5 million and a net loss of $27.6 million, or $(0.62) per share Consolidated Statement of Operations (Year Ended Dec 31) | Account (in thousands) | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | :--- | | Total Revenue | $38,350 | $62,898 | $54,693 | | Operating Income (Loss) | $(20,462) | $2,710 | $(10,717) | | Financial Expenses, Net | $(7,120) | $(9,233) | $(7,559) | | Net Loss | $(27,582) | $(6,523) | $(18,276) | | Loss Per Share (Basic & Diluted) | $(0.62) | $(0.22) | $(1.23) | Consolidated Statements of Cash Flows Net cash used in operating activities was $10.3 million in 2021, with investing and financing activities providing $18.9 million and $12.1 million respectively, increasing cash by $20.7 million Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Account (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,285) | $(26,106) | | Net cash provided by (used in) investing activities | $18,921 | $(19,952) | | Net cash provided by financing activities | $12,078 | $46,467 | | Net increase in cash and cash equivalents | $20,720 | $473 | | Cash and cash equivalents at end of year | $38,985 | $18,265 | Notes to Consolidated Financial Statements The notes detail accounting policies, commercial agreements, debt instruments, and share capital, including revenue recognition for Chiesi agreements, the August 2021 debt exchange, and $247.9 million in tax loss carryforwards - Revenue from the Chiesi agreements' license and R&D services is recognized over time using a cost-to-cost method, based on the ratio of costs incurred to date to total estimated costs at completion[516][578] - The August 2021 exchange of 2021 Notes for 2024 Notes was accounted for as a debt extinguishment, resulting in a recognized loss of $0.8 million and a reduction of stockholders' equity of $12.2 million[433][667] - As of December 31, 2021, the company had aggregate Net Operating Loss (NOL) carryforwards of approximately $247.9 million available to reduce future taxable income[701] - The company has royalty commitments to Israel's NATI, with a maximum total royalty amount payable of approximately $38.6 million as of December 31, 2021, contingent on sales of products developed with NATI funding[630]