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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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(Mark One)

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⌧   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the quarterly period ended June 30, 2020

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OR

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+972-4-988-9488

(Registrant’s telephone number, including area code)

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N/A

(Former name, former address and former fiscal year, if changed since last report)

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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  ⌧  No  ◻

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧  No  ◻

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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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  ☐   No   ☒

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On August 1, 2020, approximately 32,442,636 shares of the Registrant’s common stock, $0.001 par value, were outstanding.

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FORM 10-Q

TABLE OF CONTENTS

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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PROTALIX BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

CAPITAL DEFICIENCY

(U.S. dollars in thousands, except per share data)

(Unaudited)

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(1) Common Stock, $0.001 par value; Authorized – as of June 30, 2020 and 2019 - 120,000,000 and 350,000,000, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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PROTALIX BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

(Unaudited)

(Continued) – 2

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Protalix BioTherapeutics, Inc. (collectively with its subsidiaries, the “Company”) and its wholly-owned subsidiaries, Protalix Ltd. and Protalix B.V. (collectively, the “Subsidiaries”), are biopharmaceutical companies focused on the development and commercialization of recombinant therapeutic proteins based on the Company’s proprietary ProCellEx^® protein expression system (“ProCellEx”). To date, the Company has successfully developed taliglucerase alfa (marketed under the name BioManguinhos alfataliglicerase in Brazil and certain other Latin American countries and Elelyso^® in the rest of the territories) for the treatment of Gaucher disease that has been approved for marketing in the United States, Brazil, Israel and other markets. The Company has a number of product candidates in varying stages of the clinical development process. The Company’s strategy is to develop proprietary recombinant proteins that are therapeutically superior to existing recombinant proteins currently marketed for the same indications.

The Company’s product pipeline currently includes, among other candidates:

Obtaining marketing approval with respect to any product candidate in any country is dependent on the Company’s ability to implement the necessary regulatory steps required to obtain such approvals. The Company cannot reasonably predict the outcome of these activities.

On May 28, 2020, the Company, together with Chiesi Global Rare Diseases, a unit of Chiesi Farmaceutici S.p.A., the Company’s development and commercialization partner (“Chiesi”), announced the submission on May 27, 2020 of a Biologics License Application (BLA) to the U.S. Food and Drug Administration (the “FDA”) for pegunigalsidase alfa for the treatment of adult patients with Fabry disease under the FDA’s Accelerated Approval pathway. On July 28, 2020, the FDA informed Chiesi that the BLA had been filed for review and that the FDA was working on the 74-day letter. In addition, the FDA informed Chiesi that no “Refuse To File” will be issued for the PRX-102 BLA.

On March 18, 2020, the Company completed a private placement of its common stock and warrants. In connection with the offering, the Company issued 17,604,423 unregistered shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a purchase price per share of $2.485 and warrants to purchase an additional 17,604,423 shares of Common Stock at an exercise price of $2.36 per share. The warrants are exercisable commencing six months following their issuance for a period of five years from the date of issuance. For accounting purposes, the warrants are classified as equity considering the warrants’ terms.

The net proceeds committed to the Company from the private placement were approximately $41.3 million, after deducting advisory fees and other estimated offering expenses.

In July 2020, the Company collected total proceeds of approximately $4.6 million from accounts receivable outstanding at June 30, 2020; approximately $1.6 million in connection with its collaboration with Chiesi and approximately $3.0 million from sales of BioManguinhos alfataliglicerase to Fundação Oswaldo Cruz (“Fiocruz”), an arm of the Brazilian Ministry of Health (the “Brazilian MoH”).

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)

On October 19, 2017, Protalix Ltd. and Chiesi entered into an Exclusive License and Supply Agreement (the “Chiesi Ex-US Agreement”) pursuant to which Protalix Ltd.granted to Chiesi an exclusive license for all markets outside of the United States to commercialize pegunigalsidase alfa. On July 23, 2018, Protalix Ltd. entered into an Exclusive License and Supply Agreement with Chiesi (the “Chiesi US Agreement”) with respect to the commercialization of pegunigalsidase alfa in the United States.

Under each of the Chiesi Ex-US Agreement and the Chiesi US Agreement (collectively, the “Chiesi Agreements”), Chiesi made an upfront payment to Protalix Ltd. of $25.0 million in connection with the execution of each agreement. In addition, under the Chiesi Ex-US Agreement, Protalix Ltd. is entitled to additional payments of up to $25.0 million in pegunigalsidase alfa development costs, capped at $10.0 million per year, and to receive additional payments of up to $320.0 million, in the aggregate, in regulatory and commercial milestone payments. Under the Chiesi US Agreement, Protalix Ltd. is entitled to payments of up to a maximum of $20.0 million to cover development costs for pegunigalsidase alfa, subject to a maximum of $7.5 million per year, and to receive additional payments of up to a maximum of $760.0 million, in the aggregate, in regulatory and commercial milestone payments.

Under the terms of both of the Chiesi Agreements, Protalix Ltd. will manufacture all of the pegunigalsidase alfa needed under the agreements, subject to certain exceptions, and Chiesi will purchase pegunigalsidase alfa from Protalix, subject to certain terms and conditions. Under the Chiesi Ex-US Agreement, Chiesi is required to make tiered payments of 15% to 35% of its net sales, depending on the amount of annual sales outside of the United States, as consideration for product supply. Under the Chiesi US Agreement, Chiesi is required to make tiered payments of 15% to 40% of its net sales, depending on the amount of annual sales in the United States, as consideration for product supply.

Since its approval by the FDA, taliglucerase alfa has been marketed by Pfizer Inc. (“Pfizer”) in accordance with the exclusive license and supply agreement entered into between Protalix Ltd. and Pfizer (the “Pfizer Agreement”). In October 2015, Protalix Ltd. and Pfizer entered into an amended exclusive license and supply agreement (the “Amended Pfizer Agreement”) pursuant to which the Company sold to Pfizer its share in the collaboration created under the Pfizer Agreement for the commercialization of Elelyso. As part of the sale, the Company agreed to transfer its rights to Elelyso in Israel to Pfizer while gaining full rights to it in Brazil. Under the Amended Pfizer Agreement, Pfizer is entitled to all of the revenues, and is responsible for 100% of expenses globally for Elelyso, excluding Brazil where the Company is responsible for all expenses and retains all revenues.

On June 18, 2013, the Company entered into a Supply and Technology Transfer Agreement (the “Brazil Agreement”) with Fiocruz for taliglucerase alfa. Fiocruz’s purchases of BioManguinhos alfataliglicerase to date have been significantly below certain agreed-upon purchase milestones and, accordingly, the Company has the right to terminate the Brazil Agreement. Notwithstanding the termination right, the Company is, at this time, continuing to supply BioManguinhos alfataliglicerase to Fiocruz under the Brazil Agreement, and patients continue to be treated with BioManguinhos alfataliglicerase in Brazil.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for a fair statement of the results for the interim periods presented have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2019, filed by the Company with the U.S. Securities and Exchange Commission (the “Commission”). The comparative balance sheet at December 31, 2019 has been derived from the audited financial statements at that date.

Basic and diluted loss per share (“LPS”) are computed by dividing net loss by the weighted average number of shares of the Company’s Common Stock attributable to common stockholders outstanding for each period.

The calculation of diluted LPS does not include 7,812,543 and 18,445,764 shares of Common Stock underlying outstanding options and restricted shares of Common Stock and shares issuable upon conversion of outstanding convertible notes and outstanding warrants for the six months ended June 30, 2019 and 2020, respectively, and 7,805,142 and 25,997,289 shares of Common Stock for the three months ended June 30, 2019 and 2020, respectively, because their effect would be anti-dilutive.

The computation of basic and diluted net loss per common stock was adjusted retrospectively for all periods presented to reflect the Company’s reverse stock split at a ratio of one-for-ten, effective as of December 19, 2019.

Effective January 1, 2018, the Company adopted Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, a contract with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

Revenues are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer.

The Company recognizes revenues from selling goods at a point in time when control over the product is transferred to customers (upon delivery).

The Company has identified two performance obligations in Chiesi agreements as follows: (1) the license and research and development services and (2) the contingent performance obligation regarding future manufacturing.

The Company determined that the license together with the research and development services should be combined into single performance obligation since Chiesi cannot benefit from the license without the research and development services. The research and development services are highly specialized and are dependent on the supply of the drug.

The future manufacturing is contingent on regulatory approvals of the drug and the Company deems these services to be separately identifiable from other performance obligations in the contract. Manufacturing services post-regulatory approval are not interdependent or interrelated with the license and research and development services.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)

The transaction price was comprised of fixed consideration and variable consideration (capped research and development reimbursements). Under ASC 606, the consideration to which the Company would be entitled upon the achievement of contractual milestones, which are contingent upon the occurrence of future events, are a form of variable consideration. The Company estimates variable consideration using the most likely method. Amounts included in the transaction price are recognized only when it is probable that a significant reversal of cumulative revenues will not occur. Prior to recognizing revenue from variable consideration, the Company uses significant judgment to determine the probability of significant reversal of such revenue.

Since the customer benefits from the research and development services as the entity performs the service, revenue from granting the license and the research and development services is recognized over time using the cost-to-cost method. The Company used significant judgment when it determined the costs expected to be incurred upon satisfying the identified performance obligation.

Revenue from additional research and development services ordered by Chiesi, is recognized over time using the cost-to-cost method.

Revenue from the research and development services is recognized over time using the cost-to-cost method since the customer benefits from the research and development services as the entity performs the service.

e.     Recently issued accounting pronouncements

In June 2016, the Financial Accounting Standards Board issued an Accounting Standards Update that supersedes the existing impairment model for most financial assets to a current expected credit loss model. The new guidance requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not expect to collect. The Company adopted this guidance effective January 1, 2020, with no material impact on its consolidated financial statements.

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NOTE 3 – FAIR VALUE MEASUREMENT

The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received from the sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – FAIR VALUE MEASUREMENT (Continued)

The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

The fair value of the financial instruments included in the working capital of the Company is usually identical or close to their carrying value. The fair value of the convertible notes derivative is based on Level 3 measurement.

As of June 30, 2020, the carrying amounts of short-term and long-term deposits approximate their fair values due to the stated interest rates, which approximate market rates.

The fair value of the $57.9 million aggregate principal amount of the Company’s outstanding 7.50% convertible promissory notes due November 2021 (the “2021 Notes”) as of June 30, 2020 is approximately $62.2 million based on a Level 3 measurement.

The Company prepared a valuation of the fair value of the Company’s outstanding 2021 Notes (a Level 3 valuation) as of June 30, 2020. The value of these notes was estimated by implementing the binomial model. The liability component was valued based on the Income Approach. The following parameters were used:

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 – REVENUES (Continued)

During the six months ended June 30, 2020, the Company recorded revenue in the amount of $6.7 million following a change in estimate of the total costs expected to be incurred in the connection with the Chiesi Agreements.

On March 16, 2020, the Company agreed to conduct a feasibility study with Kirin Holdings Company, Limited (“Kirin”) to evaluate the production of a novel complex protein utilizing ProCellEx^®, the Company’s proprietary plant cell-based protein expression system. Kirin will bear the costs of conducting cell line engineering and protein expression studies on the target protein. In addition, the contract provides Kirin with an option to a future service for which the Company received a non-refundable payment in the amount of $1.0 million. The Company will recognize such amount as revenues when the aforementioned future services are performed or when the option expires.

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NOTE 5 – STOCK TRANSACTIONS

On June 17, 2020, the Company granted, with the approval of the Company’s compensation committee, 10-year options to purchase 196,995 shares of Common Stock to the Company’s Sr. Vice President and Chief Development Officer under the Company’s Amended and Restated 2006 Employee Stock Incentive Plan, as amended (the “Plan”). The options have an exercise price equal to $3.59 per share and vest over a four-year period in 16 equal quarterly increments. Vesting of the options granted to the Sr. Vice President and Chief Development Officer are subject to automatic acceleration in full upon a Corporate Transaction or a Change in Control, as those terms are defined in the Plan, and are subject to certain other terms and conditions. The Company’s President and Chief Executive Officer may, in his discretion, grant options to the Company’s Sr. Vice President and Chief Development Officer to purchase additional shares if the Company effects certain transactions in which it issues additional shares of Common Stock. The Company estimated the fair value of the options on the date of grant using the Black-Scholes option-pricing model to be approximately $0.5 million based on the following weighted average assumptions: share price equal to $3.59; dividend yield of 0% for all years; expected volatility of 80.43%; risk-free interest rate of 0.59%; and expected life of six years.

On June 17, 2020, the Company granted, with the approval of the Company’s compensation committee, 10-year options to purchase 760,311 shares of Common Stock, in the aggregate, to certain of the Company’s employees under the Plan. The options granted have an exercise price equal to $3.66 per share and vest over a four-year period in 16 equal quarterly increments. The Company estimated the fair value of the options on the date of grant using the Black-Scholes option-pricing model to be approximately $1.9 million based on the following weighted average assumptions: share price equal to $3.66; dividend yield of 0% for all years; expected volatility of 80.49%; risk-free interest rate of 0.45%; and expected life of six years.

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Recent Company Developments

As we disclosed last quarter, we continue to actively advance all our clinical programs. We are in close contact with our principal investigators and clinical sites and our clinical research organizations, which are primarily located in the United States and Europe, and to date, our clinical trials have not been materially adversely affected by COVID-19. In light of recent developments relating to the COVID-19 pandemic, the focus of healthcare providers and hospitals on fighting the virus, and consistent with the FDA’s updated industry guidance for conducting clinical trials issued on March 18, 2020, we and our contract research organizations have made certain adjustments to the operation of our clinical trials in an effort to ensure the monitoring and safety of patients and minimize risk to trial integrity during the pandemic and generally, and we may need to make further adjustments in the future.

In response to the spread of COVID-19, and with local directives issued in response thereof, we restructured the work day within our facilities to consist of two shifts thereby reducing the number of employees present in the facilities at any time and facilitating their ability to practice social distancing. Employees that were able to work from home were instructed to do so. Such efforts resulted in minor delays in the performance of administrative activities outside of the clinical programs.

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In June 2020, after local directives allowed more flexibility with respect to social interactions, we returned to a regular work day. However, as the pandemic’s effect locally has continued to change, and local Israeli directives have evolved to address the changing effects, we have decided to restore the two-shift work day schedule and to again encourage employees that are able to work from home to do so.

We will continue to evaluate the impact of the COVID-19 pandemic on our business and our clinical trials as we learn more and the impact of COVID-19 on our industry becomes more clear. We intend to continuously assess the impact of COVID-19 on our trials, expected timelines and costs.

ProCellEx: Our Proprietary Protein Expression System

Plant Cell Production Advantages Versus Mammalian Cell Production

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Pegunigalsidase Alfa (PRX-102) for the Treatment of Fabry Disease

PRX-102 is our proprietary, investigational, plant cell culture expressed enzyme, and a chemically modified stabilized version of, the recombinant α-Galactosidase-A protein under development for the treatment of Fabry disease. Fabry disease is a serious life-threatening rare genetic disorder. Fabry patients lack the lysosomal enzyme, α-galactosidase-A leading to the progressive accumulation of abnormal deposits of a fatty substance called globotriaosylceramide (Gb₃) in blood vessel walls throughout their body. The abnormal storage of Gb₃ increases with time and, as a result, Gb₃ accumulates, primarily in the blood and in the blood vessel walls. The accumulation leads to a narrowing of the blood vessels, which in turn leads to decreased blood flow and tissue nourishment. The ultimate consequences of Gb₃ deposition range from episodes of pain and impaired peripheral sensation to end-organ failure, particularly of the kidneys, but also of the heart and the cerebrovascular system. Fabry disease occurs in one person per 40,000 to 60,000 males. The global market for Fabry disease was approximately $1.7 billion in 2019 (Global Data) and continues to grow at a CAGR of approximately 10% (Data Bridge Market Research).

On May 28, 2020, we, together with Chiesi, announced the submission on May 27, 2020 of a BLA to the FDA for PRX-102 for the treatment of adult patients with Fabry disease under the FDA’s Accelerated Approval pathway. The BLA submission includes a comprehensive set of preclinical, clinical and manufacturing data compiled from our completed phase I/II clinical trial of PRX-102, including the related extension study succeeding the phase I/II clinical trial, interim clinical data from our BRIDGE Study and safety data from our on-going clinical studies of PRX-102, including extension studies. On July 28, 2020, the FDA informed Chiesi that the BLA had been filed for review and that it was working on the 74-day letter. In addition, the FDA informed Chiesi that no “Refuse to File” will be issued for the BLA. Upon the BLA approval, if approved, we will be eligible to receive a milestone payment from Chiesi.

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In December 2017, the European Commission granted Orphan Drug Designation for PRX-102 for the treatment of Fabry disease. Orphan Drug Designation for PRX-102 qualifies Chiesi for access to a centralized marketing authorization procedure, including applications for inspections and for protocol assistance. If the orphan drug designation is maintained at the time PRX-102 is approved for marketing in the European Union, if at all, we expect that PRX-102 will benefit from 10 years of market exclusivity within the European Union. The market exclusivity will not have any effect on Fabry disease treatments already approved at that time.

In January 2018, the FDA granted Fast Track designation to PRX-102. Fast Track designation is a process designed to facilitate the development and expedite the review of drugs and vaccines for serious conditions that fill an unmet medical need.

Key Trials and Design

Our phase III clinical program of PRX-102 for the treatment of Fabry disease includes three individual studies; the BALANCE, BRIDGE and BRIGHT Studies. In 2015, we completed a phase I/II clinical trial of PRX-102. Patients that completed the phase I/II clinical trial were offered the opportunity to continue PRX-102 treatment as part of a long-term extension study. In the phase III clinical program, we are studying two alternative dosing regimens for PRX-102; 1 mg/kg every two weeks, with the potential for improved efficacy and safety offering a potential alternative to existing enzyme replacement therapies, and 2 mg/kg every four weeks, which has the potential to lower treatment burden versus existing treatments and potentially provide a better quality of life for a subset of Fabry patients. Enrolment has been completed in each of the BALANCE and BRIGHT Studies. Topline results from the BRIDGE study were released in May 2020. The last patient/last visit in the BRIGHT study was in July 2020.

Phase III BALANCE Study

The phase III BALANCE clinical trial of PRX-102 for the treatment of Fabry disease, or the BALANCE Study, is a 24-month, randomized, double blind, active control study of PRX-102 in Fabry patients with impaired renal function. We have completed enrollment of 78 patients in the trial, which is designed to evaluate the safety and efficacy of PRX-102 compared to agalsidase beta (Fabrazyme^®) on renal function in Fabry patients with progressing kidney disease previously treated with Fabrazyme infused once every two weeks. Patients previously treated with Fabrazyme for approximately one year and on a stable dose for at least six months were screened and then randomized on a 2:1 ratio to 1 mg/kg of PRX-102 or 1 mg/kg of Fabrazyme. Randomization is being stratified by urinary protein to creatinine ratio (UPCR) of < or ≥ 1 g/g by spot urine sample. The study was designed such that no more than 50% of the patients enrolled in the study would be female.

The primary endpoint for the BALANCE Study is the comparison in the annualized rate of decline of eGFR slope between Fabrazyme and PRX-102. eGFR is considered a clinically valuable, reliable and accepted test to measure the level of kidney function and stage of kidney disease. Additional parameters being evaluated include: cardiac assessment, lyso-Gb₃ (a biomarker for monitoring Fabry patients status), pain, quality of life, immunogenicity, Fabry clinical events, pharmacokinetics and other parameters. The study also evaluates the safety and tolerability of PRX-102.

We intend to conduct an interim analysis when the last enrolled patient reaches 12 months of treatment to test for non-inferiority to support anticipated regulatory filings with the EMA. Notwithstanding the interim analysis, patients enrolled in the BALANCE Study will continue to be treated for a total of 24 months, at which point the data will be analyzed to test for superiority in a final analysis of the study data. This final analysis will be used to support converting the accelerated approval into a traditional approval, if the May 2020 PRX-102 BLA submission results in an approval from the FDA under the Accelerated Approval pathway.

Phase III BRIDGE Study

The BRIDGE Study is an open label, switch-over study designed to evaluate the safety and efficacy of 1 mg/kg of PRX-102 infused every two weeks, in up to 22 Fabry patients. The trial, which has been completed, enrolled patients previously treated with agalsidase alfa (Replagal^®) for at least two years and on a stable dose for at least six months. Patients were screened and evaluated over three months while continuing Replagal treatment. Following the screening period, each patient was enrolled and switched from Replagal treatment to receive intravenous (IV) infusions of PRX-102 1 mg/kg every two weeks for 12 months. Topline results from the study were released in May 2020.

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Topline results of the data generated in the BRIDGE Study showed significant improvement in renal function as measured by mean annualized estimated Glomerular Filtration Rate (eGFR slope) and an amelioration of the course of disease in both male and female patients who were switched from Replagal to PRX-102. Consistent with previously announced interim data, PRX-102 was found to be well tolerated, with all adverse events being transient in nature without sequelae. Twenty-two patients were enrolled in the study; two of those patients withdrew early from the study due to hypersensitivity reaction, and 20 of the patients successfully completed the 12-month treatment duration. Eighteen of the patients who completed the study opted to roll over to a long-term extension study and continue to be treated with PRX-102.

In the study, the mean annualized eGFR slope of the study participants improved from -5.90 mL/min/1.73m²/year while on Replagal to -1.16 mL/min/1.73m²/year on PRX-102 in all patients. Male patients improved from -6.36 mL/min/1.73m²/year to -1.67 mL/min/1.73m²/year and female patients improved from 5.03 mL/min/1.73m²/year to 0.21 mL/min/1.73m²/year.

Baseline characteristics of the patients, ranging from ages 24 to 60 years, were as follows: mean eGFR 75.87 in males and 86.14 mL/min/1.73m² in females; mean residual leucocytes enzymatic activity was 4.8% of lab normal mean in males and 27.9% in females; and plasma lyso-Gb₃ mean levels were 49.7 nM and 13.8 nM in males and females, respectively. While lyso-Gb₃ levels remain slightly high, particularly within the male cohort, continuous reduction in lyso-Gb₃ levels was observed.

Data from the interim analysis of the BRIDGE Study was included in the PRX-102 BLA submission to the FDA under the Accelerated Approval pathway, and we anticipate that the final analysis will be used to support a Marketing Authorization Application (MAA) with the EMA.

Phase III BRIGHT Study

The phase III BRIGHT clinical trial of PRX-102 for the treatment of Fabry disease, or the BRIGHT Study, which was completed in July 2020, is a 12-month, open-label switch-over study designed to assess the safety, efficacy and pharmacokinetics (PK) of PRX-102 via intravenous (IV) infusions of 2 mg/kg administered every 4 weeks in up to 30 patients with Fabry disease, previously treated with an ERT (Fabrazyme or Replagal). The rationale for this open-label switch-over study is based on the enhanced pharmacokinetic (PK) profile of PRX-102. Phase 1/2 study measurements and PK projection modelling data suggest that PRX-102 2.0 mg/kg every 4 weeks may be beneficial in patients with mild to moderate Fabry disease. This treatment dose and regimen is aimed to serve as a maintenance program for Fabry patients without severe clinical symptoms and with relatively slow disease progression, with the potential to delay the risk of developing disease complications. To determine eligibility for participation in the study, candidates were screened to identify and select Fabry patients without severe clinical symptoms and with relatively slow disease progression whom, according to the evaluation of the treating physician, were candidates for the new regimen. Patients who matched the criteria were enrolled in the study and switched from their current treatment of intravenous (IV) infusions every 2 weeks to 2 mg/kg of PRX-102 every 4 weeks for 12 months. Enrollment in the BRIGHT study was completed in June 2019.

Patients participating in the study are evaluated for various disease-related clinical symptoms and biomarkers, including their kidney disease rate of deterioration, while being treated with the 4-week dosing regimen as measured by eGFR. In addition, participating patients are evaluated to assess the safety and tolerability of PRX-102. This study analysis is descriptive in nature. In February 2019, we announced preliminary PK data from the BRIGHT study. The results demonstrate that PRX-102 was present and remained active in the plasma over the 4-week infusion intervals. The mean concentration of PRX-102 at day 28 was 138 ng/mL. In comparison, published data on Fabrazyme (1 mg/kg every 2 weeks) shows a mean concentration of 20 ng/mL at 10 hours post infusion. In addition, the area under the curve (AUC) for PRX-102 was measured to be approximately 2,000,000 ng hr/mL over 28 days. Based on published data, the AUC of Fabrazyme is approximately 10,000 ng hr/mL. A preliminary safety analysis of 19 patients enrolled in the BRIGHT study was also conducted, and indicated that PRX-102 is well tolerated. To date, substantially all of the patients who completed the study opted, with the advice of the treating physician, to continue treatment under the 4-week dosing regimen in a long-term extension study.

COVID-19 Impact on PRX-102 Clinical Trials

To date, the COVID-19 pandemic has had a minimal effect on the performance of the phase III clinical trials of PRX-102 as many of the patients were already treated in home care settings. In a minimal amount of cases, patients that completed a trial were not able to be transferred into an extension study due to the pandemic restrictions, and, accordingly, the main trial was prolonged for the patients to permit the continuation of treatment.

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Phase I/II Study

Our clinical development activities for PRX-102 were initiated with a phase I/II clinical trial; a worldwide, multi-center, first-in-human, open-label, dose-ranging study to evaluate the safety, tolerability, PK, pharmacodynamics (PD) and efficacy parameters of PRX-102 administered by IV infusion every other week for 12 weeks to adult naïve symptomatic Fabry disease patients. Baseline values for renal Gb₃ inclusions assessed by Barisoni lipid inclusion scoring system (BLISS), plasma Gb₃ and lyso-Gb₃ and supportive clinical data were collected at the start of treatment. The phase I/II clinical trial was completed in 2015.

Sixteen adult, naïve Fabry patients (9 male and 7 female) completed the trial, each in one of three dosing groups, 0.2 mg/kg, 1 mg/kg and 2 mg/kg. Each patient received intravenous (IV) infusions of PRX-102 every two weeks for 12 weeks, with efficacy follow-up after six-month and twelve-month periods. The majority of the patients who completed the trial opted to continue receiving PRX-102 in an open-label, up to 60-month extension study under which all patients receive 1 mg/kg of the drug, the selected dose for our BALANCE Study and BRIDGE Study.

The adult symptomatic, ERT-naïve Fabry disease patients enrolled in the phase I/II study were evaluated for Gb₃ levels in kidney biopsies and for plasma lyso-Gb₃ concentration by the quantitative BLISS methodology. Biopsies were available from 14 patients. The outcome of ≥ 50% reduction in the average number of Gb₃ inclusions per kidney PTC from baseline to month 6 was demonstrated in 11 of 14 (78.6%) of the patients treated with PRX-102. The overall results demonstrate that PRX-102 reaches the affected tissue and reduces kidney Gb₃ inclusions burden and lyso-Gb₃ in the circulation. A high correlation was found between the two Fabry disease biomarkers, reduction of kidney Gb₃ inclusions and the reduction of plasma lyso-Gb₃ over six months of treatment.

Data was recorded at 24 months from 11 patients who completed 12 months of the long-term open-label extension trial that succeeded the phase I/II study. Patients who did not continue in the extension trial included: female patients who became or planned to become pregnant and therefore were unable to continue in accordance with the study protocol; and patients who could not continue to participate in a clinical study due to personal reasons.

Results have shown that lyso-Gb₃ levels decreased approximately 90% from baseline. Renal function remained stable with mean eGRF levels of 108.02 and 107.20 at baseline and 24 months, respectively, with a modest annual eGFR slope of -2.1. An improvement across all the gastrointestinal symptoms evaluated, including severity and frequency of abdominal pain and frequency of diarrhea, was noted. Cardiac parameters, including LVM, LVMI and EF, remained stable with no cardiac fibrosis development detected. In conclusion, an improvement of over 40% in disease severity was shown as measured by the Mainz Severity Score Index (MSSI), a score compiling the different elements of the disease severity including neurological, renal and cardiovascular parameters. In addition, an improvement was noted in each of the individual parameters of the MSSI.

The majority of adverse events were mild-to-moderate in severity, and transient in nature. During the first 12 months of treatment, only three of 16 patients (less than 19%) formed anti-drug antibodies (ADA), of which two of these patients (less than 13%) had neutralizing antibodies. Importantly, however, the ADAs turned negative for all three of these patients following 12 months of treatment. The ADA positivity effect had no observed impact on the safety, efficacy or continuous biomarker reduction of PRX-102.

Commercialization Agreements with Chiesi Farmaceutici

We have entered into two exclusive global licensing and supply agreements for PRX-102 for the treatment of Fabry disease with Chiesi. The agreements have significant revenue potential for Protalix. Under the agreements, Protalix Ltd. has received $50.0 million in upfront payments and was entitled to development cost reimbursements of up to $45.0 million, up to more than $1.0 billion in potential milestone payments and tiered royalties of 15% - 35% (ex-US) and 15% - 40% (US).

On October 19, 2017, Protalix Ltd. and Chiesi entered into the Chiesi Ex-US Agreement pursuant to which Chiesi was granted an exclusive license for all markets outside of the United States to commercialize PRX-102. Under the Chiesi Ex-US Agreement, Chiesi made an upfront payment to Protalix Ltd. of $25.0 million in connection with the execution of the agreement, and Protalix Ltd. was entitled to additional payments of up to $25.0 million in development costs in the aggregate, capped at $10.0 million per year. Protalix Ltd. is also eligible to receive additional payments of up to a maximum of $320.0 million in regulatory and commercial milestone payments. Protalix Ltd. agreed to manufacture all of the PRX-102 needed for all purposes under the agreement, subject to certain exceptions, and Chiesi will purchase PRX-102 from Protalix Ltd., subject to certain terms and conditions. Chiesi is required to make tiered payments of 15% to 35% of its net sales, depending on the amount of annual sales, as consideration for the supply of PRX-102.

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On July 23, 2018, Protalix Ltd. entered into the Chiesi US Agreement with respect to the development and commercialization of PRX-102 in the United States. Protalix Ltd. received an upfront, non-refundable, non-creditable payment of $25.0 million from Chiesi and was entitled to additional payments of up to a maximum of $20.0 million to cover development costs for PRX-102, subject to a maximum of $7.5 million per year. Protalix Ltd. is also eligible to receive additional payments of up to a maximum of $760.0 million, in the aggregate, in regulatory and commercial milestone payments. Chiesi will also make tiered payments of 15% to 40% of its net sales under the Chiesi US Agreement to Protalix Ltd., depending on the amount of annual sales, subject to certain terms and conditions, as consideration for product supply.

Elelyso^® for the Treatment of Gaucher Disease

Elelyso (taliglucerase alfa), our first commercial product, was approved by the FDA in 2012 for injection as an enzyme replacement therapy (ERT) for the long-term treatment of adult patients with a confirmed diagnosis of type 1 Gaucher disease. In August 2014, the FDA approved Elelyso for injection for pediatric patients. Elelyso is the first plant cell derived recombinant protein to be approved by the FDA for the treatment of Gaucher disease and is now approved in over 20 markets.

Gaucher disease is a $1.5 billion global annual therapeutic market that includes Sanofi’s Cerezyme^®, Shire’s (acquired by Takeda Pharmaceutical Company Limited) Vpriv^® and Sanofi’s Cerdelga^®.

Commercialization Agreements for Elelyso

We have licensed to Pfizer the global rights to Elelyso in all markets excluding Brazil. Pfizer retains 100% of revenue and reimburses 100% of direct costs. We manufacture drug substance for Pfizer, subject to certain terms and conditions.

For the first 10-year period after the execution of our Amended Pfizer Agreement, we have agreed to sell drug substance to Pfizer for the production of Elelyso, and Pfizer maintains the right to extend the supply period for up to two additional 30-month periods subject to certain terms and conditions.

We maintain distribution rights to Elelyso in Brazil (marketed as alfataliglicerase) through a supply and technology transfer agreement with Fiocruz, an arm of the Brazilian MoH. In 2019, we generated $9.1 million from sales of BioManguinhos alfataliglicerase to the Brazilian MoH.

Tulinercept (OPRX-106)

Tulinercept is a plant cell-expressed recombinant human tumor necrosis factor receptor II fused to an IgG1 Fc domain (TNFRII-Fc), for inhibiting TNF alpha. It is in development for oral administration. When administered orally and while passing through the digestive tract, the plant cells function as a natural delivery vehicle, having the unique attribute of a cellulose cell wall, which makes them resistant to degradation compared to proteins produced via mammalian cell expression.

Through oral administration, tulinercept is designed to work locally in the gut, thereby avoiding the systemic exposure that occurs when TNF alpha inhibitors are administered by injection or intravenous infusion. Oral administration may potentially lead to a safer to use anti-TNF and may potentially reduce the safety concerns associated with currently approved therapies.

OPRX-106 may also be less immunogenic which can potentially result in longer-term efficacy.

We believe that our oral delivery mechanism can potentially prove to be a safer and more convenient method of protein administration and could be applied to additional proteins in certain indications.

Alidornase Alfa (PRX-110)

Alidornase alfa is our proprietary chemically-modified plant cell-expressed recombinant form of human deoxyribonuclease I (DNase I), administered through inhalation. In cystic fibrosis (CF) patients, the accumulation of thick sputum in the lungs exposes them to recurrent infections and compromises lung function. DNase I therapy, or dornase alfa, is generally recommended for CF patients as a mucus thinning agent (mucolytic) to help with clearance from the airways to improve lung function and reduce exacerbations.

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However, DNase I activity is compromised by actin, a globular multi-functional protein, found in high concentration in the sputum of CF patients, that is a potent inhibitor of DNase I. As such, we believe that actin may decrease the enzyme’s DNA degradation activity and potentially interfere with the effectiveness of inhaled DNase I in the lungs of CF patients.

In order to reduce the actin-DNase I interaction and the subsequent inhibition of DNase I activity by actin, we developed alidornase alfa by chemically modifying the enzyme forming an actin inhibition resistant DNase I. This novel treatment candidate may result in improved lung function and decreased incidence of recurrent infections in patients. Thus, we believe there is the potential that our form of the enzyme will demonstrate significantly enhanced efficacy.

On July 23, 2020, we announced that we had entered into a non-binding term sheet with SarcoMed. The arrangement, if consummated, would relate to the development and commercialization of alidornase alfa for the treatment of Pulmonary Sarcoidosis and related diseases. On July 21, 2020, the FDA granted Orphan Drug Designation for alidornase alfa for the treatment of Sarcoidosis.

PRX-115

PRX-115 is our plant cell-expressed recombinant PEGylated Uricase (Urate Oxidase) – a chemically modified enzyme to treat Gout. The Uricase enzyme converts uric acid to allantoin, which is easily eliminated through urine. We use our proprietary plant-based system to express an optimized recombinant enzyme under development for the potential treatment of Gout which is designed to have an improved half-life, reduced immunogenicity and better efficacy.

Intellectual Property

A key element of our overall strategy is to establish a broad portfolio of patents to protect our proprietary technology, proprietary product and product candidates and their methods of use. As of June 30, 2020, we hold a broad portfolio of over 85 patents in Europe, the United States, Israel and additional countries worldwide, as well as over 40 pending patent applications.

Research & Development

We continuously work on the further development of our ProCellEx plant cell expression technology and bioreactor system. In addition, we are working on the development of new products, each in different initial stages of development, for specific products for which there are unmet needs in terms of efficacy and safety. Our development strategy focuses on the utilization of different modification approaches and development improvements, customized for each protein product, in all stages of expression and development. As disclosed above, we have entered into a non-binding term sheet with SarcoMed. The arrangement, if consummated, would relate to the development and commercialization of alidornase alfa for the treatment of Pulmonary Sarcoidosis and related diseases.

Critical Accounting Policies

Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements appearing in this Quarterly Report. There have been no material changes to our critical accounting policies since we filed our Annual Report on Form 10-K for the year ended December 31, 2019.

The discussion and analysis of our financial condition and results of operations is based on our financial statements, which we prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our financial condition, liquidity, or results of operations will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.

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Results of Operations

Three months ended June 30, 2020 compared to the three months ended June 30, 2019

Revenues from Selling Goods

We recorded revenues from selling goods of $3.6 million during the three months ended June 30, 2020, an increase of $0.2 million, or 6%, compared to revenues of $3.4 million for the three months ended June 30, 2019.

Revenues from License and R&D Services

We recorded revenues from license and R&D services of $7.3 million for the three months ended June 30, 2020, a decrease of $1.5 million, or 17%, compared to revenues of $8.8 million for the three months ended June 30, 2019. Revenues from license and R&D services are comprised primarily of revenues we recognized in connection with the Chiesi Agreements. The decrease is primarily due to the completion of two out of the three phase III clinical trials of PRX-102 as well as lower costs related to the BALANCE Study.

Cost of Goods Sold

Cost of goods sold was $1.8 million for the three months ended June 30, 2020, a decrease of $0.9 million, or 32%, from cost of goods sold of $2.7 million for the three months ended June 30, 2019. The decrease is primarily due to a change in the cost structure as well as lower royalties paid to the Israeli Innovation Authority.

Research and Development Expenses, Net

Research and development expenses were $9.2 million for the three months ended June 30, 2020, a decrease of $4.1 million, or 31%, compared to $13.3 million of research and development expenses for the three months ended June 30, 2019. The decrease is primarily due to the completion of two out of the three phase III clinical trials of PRX-102 and reduced costs related to the BALANCE Study as well as a decrease in costs related to manufacturing of our drug in development as some of the manufactured drug product and related costs have been recorded as inventory.

We expect research and development expenses to continue to be our primary expense as we enter into a more advanced stage of preclinical and clinical trials for certain of our product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $2.2 million for the three months ended June 30, 2020, an increase of $0.1 million, or 6%, compared to $2.1 million for the three months ended June 30, 2019.

Financial Expenses, Net

Financial expenses net were $1.9 million for the three months ended June 30, 2020 and for the three months ended June 30, 2019.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019

Revenues from Selling Goods

We recorded revenues from selling goods of $8.7 million during the six months ended June 30, 2020, an increase of $1.7 million, or 25%, compared to revenues of $7.0 million for the six months ended June 30, 2019. The increase resulted primarily from an increase of $1.8 million in sales of drug product to Brazil, which was partially offset by a decrease of $0.1 million in sales of drug substance to Pfizer.

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Revenues from License and R&D Services

We recorded revenues from license and R&D services of $23.9 million for the six months ended June 30, 2020, an increase of $8.2 million, or 52%, compared to revenues of $15.7 million for the six months ended June 30, 2019. Revenues from license and R&D services are comprised primarily of revenues we recognized in connection with the Chiesi Agreements. The increase is primarily due to revenues recognized in connection with an updated costs estimation throughout the trials until completion in the amount of $6.7 million.

Cost of Goods Sold

Cost of goods sold was $5.3 million for the six months ended June 30, 2020, an increase of $0.6 million, or 11%, from cost of goods sold of $4.7 million for the six months ended June 30, 2019. The increase is primarily due to an increase in sales of goods.

Research and Development Expenses, Net

Research and development expenses were $19.5 million for the six months ended June 30, 2020, a decrease of $5.5 million, or 22%, compared to $25 million of research and development expenses for the six months ended June 30, 2019. The decrease is primarily due to the completion of two out of the three phase III clinical trials of PRX-102 and reduced costs related to the BALANCE Study as well as a decrease in costs related to manufacturing of our drug in development as some of the manufactured drug product and related costs have been recorded as inventory.

We expect research and development expenses to continue to be our primary expense as we enter into a more advanced stage of preclinical and clinical trials for certain of our product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $5.4 million for the six months ended June 30, 2020, an increase of $1.1 million, or 25%, compared to $4.3 million for the six months ended June 30, 2019. The increase resulted primarily from a $0.8 million increase in compensation related costs and a $0.3 million increase in professional fees.

Financial Expenses, Net

Financial expenses net were $4.9 million for the six months ended June 30, 2020, an increase of $1.3 million, or 36%, compared to financial expenses net of $3.6 million for the six months ended June 30, 2019. The increase resulted primarily from expenses related to our outstanding convertible notes equal to $1.3 million.

Liquidity and Capital Resources

Our sources of liquidity include our cash balances. At June 30, 2020, we had $4.8 million in cash and cash equivalents and $35.2 million in bank deposits (both short and long term). We have primarily financed our operations through equity and debt financings, business collaborations, and grants funding.

During the six months ended June 30, 2020, we completed a private placement of common stock and warrants with committed net proceeds of approximately $41.3 million. In connection with the offering, we issued 17,604,423 unregistered shares of our common stock at a purchase price per share of $2.485 and warrants to purchase an additional 17,604,423 shares of common stock at an exercise price of $2.36 per share.

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Cash Flows

Net cash used in operations was $15.0 million for the six months ended June 30, 2020. In response to the COVID-19 pandemic, a higher number of subjects in our ongoing clinical trials opted for home care treatments over in-site treatments which resulted in an immaterial amount of additional expenses. The net loss for the six months ended June 30, 2020 of $2.5 million was increased by a $10.8 million decrease in contracts liability, a $1.6 million increase in accounts receivable and other assets and a $2.9 million increase in inventories, partially offset by an increase of $0.3 million in accounts payable and accruals, and $1.7 million amortization of debt issuance costs and debt discount. Net cash used in investing activities for the six months ended June 30, 2020 was $35.3 million and consisted primarily of an increase in bank deposits. Net cash provided by financing activities was $37.3 million resulting from our issuance of common stock and warrants on March 18, 2020.

Net cash used in operations was $12.4 million for the six months ended June 30, 2019. The net loss for the six months ended June 30, 2019 of $15 million was increased by a $2.8 million increase in accounts receivable, but was partially offset by an increase of $1.5 million in accounts payable and accruals and by a decrease in inventories of $1.6 million. Net cash used in investing activities for the six months ended June 30, 2019 was $0.5 million and consisted primarily of purchases of property and equipment, and an increase in restricted deposit.

Future Funding Requirements

As a result of our significant research and development expenditures and the lack of significant revenue from sales of taliglucerase alfa, we have generated operating losses from our continuing operations since our inception. We currently have outstanding $57.9 million aggregate principal amount of our 2021 Notes that are secured with a perfected lien on all of our assets. Under the terms of the indenture governing the 2021 Notes, we are required to maintain a minimum cash balance of at least $7.5 million. As previously disclosed, we have received a deficiency letter from the NYSE American stating that we are not in compliance with the continued listing standards as set forth in Section 1003(a)(i) – (iii) of the NYSE American Company Guide as we have reported a stockholders’ equity deficiency as of June 30, 2019 and net losses in our five most recent fiscal years ended December 31, 2018. The letter has no immediate effect on the listing of our common stock on the NYSE American. Our common stock will trade on the NYSE American while we regain compliance with the continued listing standards.

We expect to continue to incur significant expenditures in the near future, including significant research and development expenses related primarily to the clinical trials of PRX-102. Our material cash needs for the next 24 months will include, among other expenses, (i) costs of preclinical and clinical trials, (ii) employee salaries, (iii) payments for rent and operation of our manufacturing facilities, (iv) fees to our consultants and legal advisors, patents and fees for service providers in connection with our research and development efforts and (v) payment of principal and interest on our outstanding convertible promissory notes and other debt. We believe that the funds currently available to us are sufficient to satisfy our capital needs for at least 12 months from the date that the financial statements are issued.

We may be required to raise additional capital in the future in order to develop and commercialize our product candidates and continue research and development activities. Our ability to raise capital, and the amounts of necessary capital, will depend on many other factors, including:

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We expect to finance our future cash needs through corporate collaborations, licensing or similar arrangements, public or private equity offerings and/or debt financings. We currently do not have any commitments for future external funding, except with respect to the development-related payments and milestone payments that may become payable under the Chiesi Agreements. Currently, we do not expect the COVID-19 pandemic to have an adverse effect on our ability to raise capital if and to the extent we deem necessary.

Effects of Currency Fluctuations

Currency fluctuations could affect us through increased or decreased acquisition costs for certain goods and services. We do not believe currency fluctuations have had a material effect on our results of operations during the six months ended June 30, 2020 and June 30, 2019.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of each of June 30, 2020 and June 30, 2019.

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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 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.

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