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| PLX > SEC Filings for PLX > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
address unmet medical needs for the conditions. The fast track process includes
scheduling of meetings to seek FDA input into development plans, the option of
submitting an NDA serially in sections rather than submitting all components
simultaneously, the option to request evaluation of studies using surrogate
endpoints, and the potential for a priority review. The fast track designation
may be withdrawn by the FDA at any time. The fast track designation does not
guarantee that we will qualify for or be able to take advantage of the expedited
review procedures and does not increase the likelihood that UPLYSO will receive
regulatory approval.
The Orphan Drug designation for UPLYSO for the treatment of Gaucher Disease
provides special status to UPLYSO provided that it meets certain criteria. As a
result of the orphan designation, we are qualified for the tax credit and
marketing incentives of the Orphan Drug Act of 1983. A marketing application for
a prescription drug product that has been designated as a drug for a rare
disease or condition is not subject to a prescription drug user fee unless the
application includes an indication for other than a rare disease or condition.
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. UPLYSO is a plant
cell expressed version of the GCD enzyme, developed through our ProCellEx
protein expression system. UPLYSO 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 UPLYSO 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 UPLYSO 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.
In addition to UPLYSO, 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. In
September 2009, we announced preclinical data regarding pr-antiTNF, our
proprietary product candidate for the treatment of certain immune diseases such
as rheumatoid arthritis, juvenile idiopathic arthritis, ankylosing, spondylitis,
psoriatic arthritis and plaque psoriasis. Our pr-antiTNF product candidate has
an amino acid sequence that is similar to Enbrel™, which is one of the
treatments for patients of such diseases. 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 UPLYSO
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 UPLYSO. At September 30, 2009, we had an accumulated deficit of
$91.5 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 UPLYSO and the research and development
activities relating to our technology and other drug candidates. Such research
and development activities may 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 enter into a
collaboration and licensing arrangement or obtain additional funds for the
commercialization of our lead product candidate, UPLYSO, and to further develop
the research and clinical development of our other development programs.
In September 2009, we formed a new subsidiary to facilitate the EMEA
application process for marketing approval of UPLYSO in the European Union. The
new subsidiary, which was organized under the laws of the Netherlands, is a
wholly-owned subsidiary of Protalix Ltd.
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 September 30, 2009 compared to the three months ended
September 30, 2008
Research and Development Expenses
Research and development expenses were $6.0 million for the three months
ended September 30, 2009, a decrease of $99,000, or 1.6%, from $6.1 million for
the three months ended September 30, 2008. The research and development expenses
were partially offset by grants equal to $1.4 million from the Office of the
Chief Scientist, or the OCS, during the three months ended September 30, 2009,
an increase of approximately $694,000 compared to grants equal to $729,000
received from the OCS during the three months ended September 30, 2008.
We expect research and development expenses to remain consistent as the last
quarter until UPLYSO is approved for marketing by the FDA, if at all, as we
continue our ongoing advanced stage of clinical trials of UPLYSO, especially
with respect to the submission of an NDA for UPLYSO for the treatment of Gaucher
disease, the extension study that we initiated in the third quarter of 2008 for
patients that have completed our phase III clinical trial and chose to continue
the treatment, 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 UPLYSO and the
treatment protocol.
General and Administrative Expenses
General and administrative expenses were $1.4 million for the three months
ended September 30, 2009, an increase of $121,000, or approximately 9.3%, from
$1.3 million for the three months ended September 30, 2008.
Financial Expenses and Income
Financial income was $152,000 for the three months ended September 30, 2009,
a decrease of $70,000, or approximately 31.5%, from $222,000 for the three
months ended September 30, 2008. The decrease resulted primarily from the
devaluation of the U.S. dollar against the New Israeli Shekel, the NIS, and
significantly lower interest rates available for deposits during the period.
Nine months ended September 30, 2009 compared to the nine months ended
September 30, 2008
Research and Development Expenses
Research and development expenses were $17.3 million for the nine months
ended September 30, 2009, an increase of $1.5 million, or 9.5%, from
$15.8 million for the nine months ended September 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 UPLYSO. The increase
was partially offset by grants of $4.2 million from the OCS, during the nine
months ended September 30, 2009, an increase of approximately $979,000 compared
to grants equal to $3.2 million received from the OCS during the nine months
ended September 30, 2008.
We expect research and development expenses to remain consistent as the last
quarter until UPLYSO is approved for marketing by the FDA, if at all, as we
continue our ongoing advanced stage of clinical trials of UPLYSO, especially
with respect to the submission of an NDA for UPLYSO for the treatment of Gaucher
disease, the extension study that we initiated in the third quarter of 2008 for
patients that have completed our phase III clinical trial and chose to continue
the treatment, 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 UPLYSO and the
treatment protocol.
General and Administrative Expenses
General and administrative expenses were $3.8 million for the nine months
ended September 30, 2009, a decrease of $1.5 million, or approximately 28.3%,
from $5.3 million for the nine months ended September 30, 2008. The decrease
resulted primarily from a decrease of approximately $704,000 in share based
compensation due to certain stock options that were fully expensed during 2008
and, consequently, were not expensed in the nine months ended September 30,
2009.
Financial Expenses and Income
Financial income, net was $450,000 for the nine months ended September 30,
2009, a decrease of $1.6 million, or approximately 80.0%, from $2.0 million for
the nine months ended September 30, 2008. The decrease resulted primarily from
the devaluation of the U.S. dollar against the NIS and significantly lowers
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 15 months.
Cash Flows
Net cash used in operations was $14.7 million for the nine months ended
September 30, 2009. The net loss for the nine months ended September 30, 2009 of
$16.5 million was partially offset by $2.0 million of non-cash share-based
compensation and $1.4 million of depreciation expense. In addition, net loss was
partially offset by an increase of $1.7 million due to an increase in accounts
receivable. Net cash used in investing activities for the nine months ended
September 30, 2009 was $5.6 million and consisted primarily of purchases of
property and
equipment. Net cash provided from financing activities for the nine months ended
September 30, 2009 was approximately $200,000, consisting of exercise price paid
in connection with certain exercise of stock options.
Net cash used in operations was $13.8 million for the nine months ended
September 30, 2008. The net loss for the nine months ended September 30, 2008 of
$15.8 million was partially offset by $2.6 million of non-cash share-based
compensation. Net cash used in investing activities for the nine months ended
September 30, 2008 was $2.9 million and consisted primarily of purchases of
property and equipment. Net cash used in financing activities for the nine
months ended September 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 continue incurring research and development expenses at similar levels
to date until the approval of UPLYSO, if at all, including expenses related to
the hiring of personnel and additional clinical trials. We expect that general
and administrative expenses will increase slightly as we establish the initial
infrastructure necessary in connection with the potential launch of UPLYSO in
certain territories. 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.
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 15 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 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 corporate collaboration
and licensing arrangements, public or private equity offerings or debt
financings. 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 nine months ended September 30, 2009 or the
nine months ended September 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
nine months ended September 30, 2009 or the nine months ended September 30,
2008.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of each of September 30, 2009
and September 30, 2008.
Recently Issued Accounting Pronouncements
In April 2009, the FASB issued ASC Topic 825 "Financial Instruments"
(formerly FSP No. FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value
of Financial Instruments," or ASC 825. ASC 825 requires companies to disclose in
interim financial statements the fair value of financial instruments within the
scope of ASC Topic 820 "Fair Value Measurements and Disclosures" (formerly 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. ASC 825 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 ASC 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 ASC Topic 820 (formerly FSP FAS 157-4), ASC
Topic 320 (formerly FSP FAS 115-2) and Topic 958 (formerly 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 ASC Topic 855 "Subsequent Events" (formerly SFAS
No. 165, Subsequent Events), or ASC 855. ASC 855 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. ASC 855 will
be effective for interim or annual periods ending after June 15, 2009 and will
be applied prospectively. We adopted the provisions of ASC 855 for the quarter
ended June 30, 2009. The adoption of ASC 855 did not have a material impact on
our condensed financial condition, results of operations or cash flows.
In June 2009, the FASB issued Accounting Standards Update, or ASU,
No. 2009-1, "Topic 105 - Generally Accepted Accounting Principles", or ASU
2009-1, which amended ASC 105 "The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles" (formerly SFAS
No. 168 "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles - A Replacement of FASB Statement
No. 162"). ASU 2009-1 establishes the FASB Accounting Standards CodificationTM
(Codification) as the single source of authoritative U.S. generally accepted
accounting principles 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.
ASU 2009-1 and the Codification are effective for financial statements issued
for interim and annual periods ending after September 15, 2009. The Codification
supersedes all existing non-SEC accounting and reporting standards. All other
nongrandfathered non-SEC accounting literature not included in the Codification
will become nonauthoritative. Following ASU 2009-1, 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 adoption of ASU 2009-1 did not have a
material impact on our financial statements.
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