Protalix BioTherapeutics, Inc. Q2 FY2020 Earnings Call

Good morning, ladies and gentlemen. And welcome to the Protalix BioTherapeutics Second Quarter 2020 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Chuck Padala of LifeSci Advisors, Investor Relations. Mr. Padala, you may begin.

Yes. Thank you, Jerry. Welcome to Protalix BioTherapeutics second quarter 2020 financial results and business update conference call. With me today are Dror Bashan, President and CEO of Protalix; and Eyal Rubin, Chief Financial Officer. A press release announcing results and the update was issued this morning and it's available on the Protalix website. Please take a moment to read the disclaimer about forward-looking statements in the press release. The earnings release and this teleconference include forward-looking statements. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from the statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the U.S. Securities and Exchange Commission. I'll now turn the call over to Mr. Dror Bashan, CEO.

Thank you, Chuck, and welcome, everyone. Thank you for joining us today for the company’s second quarter 2020 financial results and business update. Today, during this call, I will provide an overview of the progress of our clinical programs and key corporate developments. Following my remarks, our Chief Financial Officer, Eyal Rubin, will review the company’s financial results before we open the line for questions. I’m pleased to report that the last several months have been very productive. We announced positive topline data from a Phase III BRIDGE study, and importantly, a BLA for PRX-102 was submitted to the U.S. FDA on May 27, 2020, of course, under the FDA’s accelerated approval pathway. We accomplished these important milestones while facing the challenges caused by the COVID-19 pandemic, and I’m very appreciative and proud of the dedication our entire company has shown during these unprecedented times to accomplish these goals. It is evidence of our commitment to advancing our ProCellEx development programs, achieving superior solutions for the treatment of underserved genetic disorders such as Fabry disease. Now, please let me review the recent highlights in a little more detail. On May 28, 2020, we announced a very significant milestone for our company. The submission of a BLA for PRX-102 for the treatment of adult patients with Fabry disease to the U.S. FDA under the FDA’s accelerated approval pathway. The BLA was submitted under the FDA’s accelerated approval pathway in collaboration with our development and commercialization partner, Chiesi Global Rare Diseases. We are now awaiting a response from the FDA regarding the PDUFA date, which we expect based on the FDA guidance to occur any day. We also received the filing application from the FDA, the 60 days filing notification, and in the meantime, we are working with Chiesi on the commercial launch preparation, and we hope to have more to say about that in the coming months. 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 studies succeeding the Phase I/II clinical trial of PRX-102, the interim clinical data from our Phase III BRIDGE study, which is a switch-over study, as well as Phase III data for ongoing clinical studies of PRX-102, including extension studies. As mentioned above, the BLA includes interim data from our Phase III BRIDGE clinical trial for PRX-102, for which we announced additional positive topline results following the completion of the study. This 12-month open-label single-arm switch-over study evaluated the safety and efficacy of pegunigalsidase alfa infused every two weeks, with its main objective being safety and efficacy and indicating substantial improvement in renal function in both male and female patients switched from galsidase alfa marketed by Takeda known as Replagal to PRX-102. The study confirms our belief that PRX-102 could be an important part of the enzyme replacement therapy market and potentially offer Fabry patients a new treatment option for Fabry disease. We are continuing our investigation of PRX-102 for rare diseases in additional Phase III studies. The balanced study, which is our confirmatory head-to-head double-blind study, has interim analysis results that support our European filing in the first stage, and we think once completed we can convert the expected BLA from accelerated approval to a traditional one. The second ongoing study is the BRIGHT study, which is an alternative dosing regimen study for which we expect to publish the plan results during the fourth quarter of this year, again, subject to COVID-19 pandemic limitations as it continues worldwide. These two clinical trials will complete our overall Phase III development program for Fabry, which is a very robust one. Now, please let me turn to our pipeline. By the end of July, we announced a new non-binding development and commercialization collaboration for PRX-110 with SarcoMed USA. We intend to develop it for the treatment of Pulmonary Sarcoidosis, which is a rare disease caused by inflammation, usually occurring in the lungs and lymph nodes. SarcoMed was formed in 2017 to investigate chronic pulmonary inflammation seen in patients with Pulmonary Sarcoidosis. PRX-110 is a very promising target. As we continue to expand and advance our pipeline, I want to highlight an important new addition to the company’s research and development team. At the beginning of July, we announced the appointment of Yael Hayon, Ph.D., as the Vice President of Research and Development. Yael is a great addition to our team and brings valuable perspective with her extensive experience in big pharmaceutical R&D in both scientific operations and administrative functions. She will be a valuable asset to the company and will play a key role in our future success. I also want to take the opportunity to thank our founder, Dr. Yossi Shaaltiel, who retired as our previous Head of Research and Development. We thank Yossi for his scientific and international vision and his tireless efforts that led to founding and building Protalix. We wish him great success in the future. Now, before I turn over to Eyal for an update on our financials, I want to say thanks to all our employees for their tireless efforts, especially during the last six months of this COVID-19 pandemic and restrictions. While businesses are starting to open, the pandemic is still impacting businesses in Israel and globally. We are continuing to operate and have much to look forward to in the next few months. We are very excited to hear about our progress, but even more excited about the future ahead of us. With that, I will now turn the call over to Eyal to review our financials. Eyal, please?

Thank you, Dror, and thank you, everyone, for joining today’s call. Briefly reviewing the financials for the three months ended June 30, 2020, we recorded revenue from the sale of goods of $3.6 million, compared to revenues of $3.4 million for the same period of 2019. Revenue from licensed and R&D services for the three months ending June 30, 2020, was $7.3 million, compared to revenue of $8.8 million for the same period of 2019. Revenues from license and R&D are comprised primarily of revenues we recognize in connection with our license and supply agreements with Chiesi. 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 our Phase III BALANCE clinical trial of PRX-102 for the treatment of Fabry disease. Cost of goods sold for the three months ended June 30, 2020, was $1.8 million, compared to $2.7 million. The decrease is primarily due to a change in the cost structure, as well as lower royalties paid to the Israeli Innovation Authority. R&D expenses for the three months ended June 30th were $9.2 million, compared to $13.3 million for the same period of 2019. The decrease, as I previously mentioned, was primarily due to the completion of two out of the three Phase III clinical trials and reduced costs related to our Phase III BALANCE clinical trial, as well as a decrease in costs related to manufacturing our drug in development since some of the manufacturing drug costs have been recorded as inventory already. We expect research and development expenses to continue to be our primary expense as we enter into a more advanced stage of clinical and preclinical trials for certain of our product candidates, as Dror mentioned. SG&A expenses were $2.2 million for the three months ended June 30, 2020, compared to $2.1 million for the same period in 2019. At June 30, 2020, our cash, cash equivalents, and short-term bank deposits were approximately $40 million, compared to approximately $17.8 million in December of last year. I will now turn the call back to Dror.

Thank you, Eyal. So we have had a very productive first half of 2020 and we are excited about the rest of this year. It is rewarding to see the progress we have made in the development of a life-saving drug utilizing our special technology in Protalix. With that, I would like to thank everybody and we will open the line for questions, please.

Thank you. Ladies and gentlemen, we have a question from Mr. Pachaiyappan from H.C. Wainwright. Please go ahead.

Hi. This is Boobalan Pachaiyappan dialing in for Ram Selvaraju. Can you hear me okay?

Yes. We hear you well.

Okay. Thank you so much for that. So I wanted to start off by requesting your comments on Elelyso sales. So how did COVID-19 affect the sales of Elelyso during 2Q '20 versus 1Q '20, and then maybe if you can give me some quantitative metrics that will be helpful? And do you expect significant headwinds for the remainder of the year, and if so, what kind of strategies do you have in place to mitigate the COVID-19-related impact on Elelyso sales in Brazil?

So thank you for the call. I have to say that so far during the first half of 2020 and comparing the two quarters, we don’t see any impact of COVID-19 on our sales. Based on the forecast and the shipments that were already released, we believe that 2020 is going to be in the same neighborhood as 2019. So, all in all, we can say that for now at least we don’t see any impact. We took various measures to make sure that we switch patients to home care, and we are monitoring, obviously, the impact of the pandemic very closely. So at this point, there’s nothing really to report.

Okay. That’s very helpful. So I want to switch gears a little bit. Let's assume PRX-102 is approved by the FDA by the end of this year. How soon will the drug be launched in the U.S.? And then I wonder whether you have any thoughts related to pricing and whether the pricing would be at a discount to Fabrazyme or at a premium to Fabrazyme?

So thank you for that. So once we receive the PDUFA date, we know when the expected approval date is, and I assume the drug will be launched shortly after. As for pricing, this is something which is with Chiesi. They are our commercial partner as well as our global partner for sales and marketing, and this is not, to the best of my knowledge, completed yet, and I’m sure that we will update accordingly once we know something.

Okay. That’s very helpful. Yeah. And then with respect to the SarcoMed collaboration, what can you say beyond what’s stated in your opening remarks? And then will the non-binding term sheet be converted into a binding contract? Will any financial details be disclosed at a later date? And I have some follow-ups on that.

Yeah. So thank you for the question. We are obviously working on the full license agreement. Once it is ready, as a public company, we will issue a press release. Regarding the financial terms of the deal, I guess that like most of those licensing deals, the financial terms are going to be kept confidential. Other than this, I guess the data for it, we’ll have to agree on if and when it will be disclosed.

Okay. And with respect to the same question, does this potential license cover only Pulmonary Sarcoidosis, or does it include other indications?

It’s only for Pulmonary Sarcoidosis. Yeah.

There are options for additional indications, but right now this is the main development and the main effort.

And how solid is the capitalization of SarcoMed, and what is the expected expense of the clinical development plan that SarcoMed intends to pursue with PRX-110?

SarcoMed is a private company. So we signed an agreement. If indeed the full license agreement is signed, it means that we will not sign a full license agreement without a solid financial backing from SarcoMed to move this indication forward.

Okay. One final...

Excuse me.

Sorry. Sorry. Yeah. Sorry. Go ahead.

No. Just to again emphasize that a full license agreement will be signed, meaning that many other terms and conditions on both sides, of course, but clearly after we verify that there are enough resources, if I may say, to move this product forward into a later clinical stage, of course.

Okay. And one final term, and this is the last one. How should we think about modeling the R&D cost for the remainder of the year?

Can you repeat the question? I can hardly hear you. I’m sorry.

How should we think about modeling the R&D costs for the remainder of the year?

Yeah. So thank you for the question. The R&D costs should stay at the same pace as the first half. But, obviously, gradually, it’s going to keep decreasing. Don’t forget that as more and more patients are being switched from the main studies to the extension studies that are fully funded by Chiesi. Obviously, the R&D expenses that we record are lower. Hopefully, and so far, we haven’t seen any material impact from the COVID-19 situation. So hopefully, if that stays the same, you will see a decrease in R&D expenses over time, as the patients transition. The only R&D expenses will be on our pipeline. Obviously, as Dror mentioned, we are working to advance our pipeline, so you might see an increase there. But, again, nothing that you can compare to a full-fledged Phase III, or actually preclinical trial Phase III that we conducted in the past couple of years.

Okay. All right. Thank you so much. That’s it from me.

Thank you.

Thank you very much.

Ladies and gentlemen, there are no further questions at this time. I’d like to turn the floor back over to Mr. Dror Bashan, CEO, for closing remarks.

So thank you for that. All I have to say is that thank you for your time. We were pleased to report our results, and we are optimistic to soon have the PDUFA date from the FDA and to continue our progress in the clinical program and report accordingly. So thank you and be safe, everybody.

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.