Protalix BioTherapeutics, Inc. Q2 FY2021 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Protalix BioTherapeutics Second Quarter 2021 Financial Results and Business Update Conference Call. As a reminder, this conference is being recorded. I will now turn the conference over to your host, Mr. David Holmes of LifeSci Advisors, Investor Relations for Protalix. You may begin your conference.

Thank you, Joe. Welcome to the Protalix Second Quarter 2021 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 the results and the update was issued this morning and is now 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 those statements made. Factors that could cause actual results to differ are described in the disclaimer and in the Protalix filings with the U.S. Securities and Exchange Commission. I will now turn the call over to Mr. Dror Bashan. Dror?

Thank you, David, and welcome, everyone, to the company's second quarter 2021 financial results and business update. During the call today, I will review the progress of our clinical programs and provide an update on our strategic roadmap for the remainder of 2021 and beyond. Following my remarks, our Chief Financial Officer, Mr. Eyal Rubin, will review the company's financial results before we open the line for questions. I would like first to discuss our balance sheet. We ended the quarter with approximately $77 million in cash. As we announced on Friday, on August 12, 2021, we entered into a definitive exchange agreement relating to the exchange of $54.65 million principal amount of our outstanding 7.5% senior secured convertible notes due 2021, for $28.75 million principal amount of newly issued 7.5% senior secured convertible notes due 2024, $25.9 million in cash, and accrued and unpaid interest through the closing date. We plan to close these exchanges as soon as practicable, subject to satisfaction of certain closing conditions. At closing, we will have reduced our debt by $25.8 million and effectively extended the maturity for substantially all of the remaining debts from 2021 until 2024. This extension of the maturity date of the notes allows us to use our cash resources to continue and realize the PRX-102 potential and advance our early-stage pipeline. We feel confident about our ability to continue to fund our clinical programs as well as to prepare for the potential commercial launch of PRX-102. We recently announced that we have submitted the Type A meeting request to the FDA to discuss the Complete Response Letter dated April 27, 2021, regarding the BLA for PRX-102 for the proposed treatment of adult patients with Fabry disease. The FDA has scheduled the Type A meeting for September 9, 2021. Our objective for the meeting will be to address the issues raised in the CRL and work with the FDA on a plan for resubmission. We are confident in the overall clinical profile of PRX-102 that we have assembled through our extensive development program and believe PRX-102 has the potential to provide important value to the Fabry patient community. We plan to update you regarding the new development as soon as feasible. During the quarter, we continued to build our clinical profile for PRX-102 with the release of the top-line interim results of our Phase III BALANCE clinical trial of PRX-102 for the proposed treatment of Fabry disease. Based on the interim analysis of the 12-month data generated from the BALANCE study and in combination with previously reported positive data from the Phase III BRIGHT and BRIDGE clinical trials of PRX-102, Protalix and Chiesi intend, subject to a positive meeting with the EMA, a representative of the EU regulatory authorities, to submit a marketing authorization application to the European Medicines Agency by the first quarter of 2022. This would position us to potentially have a commercial launch in Europe in the first half of 2023. Two early-stage pipeline programs are PRX-115, a plan cell-expressed recombinant PEGylated uricase chemically modified enzyme to treat refractory gout; and PRX-119, which is a long-acting DNase for NETs-related diseases. We plan to initiate toxicity studies for PRX-115 in the first quarter of 2022, and we are looking forward to updating you on these programs as they progress. Before we turn to Eyal, I would like to recognize what the challenging time has been for all of us and emphasize how much I appreciate our team and their focus and dedication to our mission of bringing important new medicines to the market for patients with high unmet clinical needs. I will now turn to Eyal for a review of our financials. Eyal, please go ahead.

Thank you, Dror, and thank you, everyone, for joining our call today. Allow me to review our second quarter 2021 financials. For the quarter ended June 30, 2021, we recorded revenue from selling goods of $3.2 million compared to revenue of $3.6 million for the same period of 2020. Revenues from license and R&D services for the 3 months ended June 30 were $3.2 million, a decrease of $4.1 million, or 56%, compared to $7.3 million for the same period of 2020. Revenues from license and R&D services are comprised primarily of revenue we recognized in connection with our license and supply agreement with Chiesi. The decrease is primarily due to an updated cost estimation throughout the trials until completion in the amount of $4.1 million and from revenues recognized in connection with the progress of our clinical trials that have been completed during 2020. Cost of goods sold for the 3 months ended June 30, 2021, was $4.7 million, an increase of $2.9 million, or 161%, compared to $1.8 million for the same period in 2020. The increase in cost of goods sold was primarily the result of certain one-time manufacturing costs incurred while preparing for the then anticipated FDA approval of the PRX-102 BLA. Research and development expenses for the 3 months ended June 30, 2021, were $7.7 million, a decrease of $1.5 million, or 16%, compared to 9.2% for the same period of 2020. The decrease is primarily the result of the completion of 2 out of the 3 Phase III clinical trials of PRX-102 and reduced costs related to our BALANCE study. 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 for the 3 months ended June 30, 2021, were $3.2 million, an increase of $1 million, or 45%, compared to $2.2 million for the same period in 2020. The increase resulted primarily from an increase in corporate costs related to insurance and funding. Financial net expenses were $2.1 million for the 3 months ended June 30, 2021, and $1.9 million for the 3 months ended June 30, 2020. The increase resulted primarily from an increase in the amortization of debt issuance costs and debt discounts. Cash, cash equivalents, and short-term bank deposits, as Dror mentioned, were approximately $77 million as of June 30, 2021. On August 12, 2021, we entered into a definitive agreement relating to exchanges of $54.65 million principal amount of our outstanding 7.5% senior secured convertible notes due 2021, for $28.75 million principal amount of newly issued 7.5% senior secured convertible notes due 2024. In addition, $25.9 million we paid in cash and accrued and unpaid interest through the closing date. We plan to close the exchange as soon as practical, subject to satisfaction of certain closing conditions. The new convertible notes may be converted at any time prior to their maturity date at an initial conversion rate based upon approximately $1.7755 per share, which represents a 32.5% premium to the closing price of our common stock on the New York Stock Exchange American at the closing of trading on August 13, 2021. The new notes will be secured by perfected liens at equal priority with the existing notes on all the material assets of the company and its subsidiaries and are guaranteed by the company's subsidiaries. Net loss for the 3 months ended June 30, 2021, was $11.2 million, or $0.25 per share, basic and diluted, compared to a net loss of $4.1 million, or $0.13 per share, basic and diluted, for the same period of 2020. I will now turn the call back to you, Dror.

Thank you, Eyal. We look forward to working closely with the FDA to develop a path forward to bring PRX-102 to commercialization for adult Fabry patients, and we are working towards continuing to advance our early-stage pipeline and positioning the company for long-term success. We look forward to updating you as the year progresses. Now let's have your questions, please.

Our first question is from Ram Selvaraju with H.C. Wainwright.

This is Boobalan dialing in for Ram Selvaraju. So first one, what are your expectations for the upcoming Type A meeting with the FDA? And what key items will be discussed during the meeting?

Okay. So as we have just mentioned, the plan is to discuss the items raised at the CRL and to discuss our path forward in order to go for resubmission.

Assuming the meeting goes well, what would be the possible next steps? And when do you think the FDA may be able to inspect the manufacturing sites?

I wish I knew when they will be able to inspect the manufacturing sites. I suggest we all wait for the meeting. Once we get the meeting minutes, we will be much smarter.

Okay. With respect to the PRX-115 and 119 programs, so could you elaborate a little more on the remaining gating factors?

On PRX-115, we plan to enter into toxicology studies in early 2022. And then following that, into Phase I. PRX-119 is still in preclinical models. I assume, a year later, we will go into a toxicology study and then take it from there.

Okay. One final from me. So with respect to the upcoming EMA meeting, do you anticipate any roadblocks with respect to EMA filing and approval of PRX-102?

Look, we hope there will not be any roadblocks. We expect the meeting to take place early October. Then, subject clearly to, let's call it a green light, we will be able to submit in early in 2022 or Q1 2022.

Our next question is from John Vandermosten with Zacks Investment Research.

I want to start off with a question on the expenses in the gross margin or the gross cost there. Will those need to be incurred again if approval is granted? Or are they just one-time expenses that were that you won't need to incur when approval comes from the FDA?

Those were one-time costs. Obviously, we cannot elaborate too much here. But in anticipation of the BLA approval, we had to take certain steps in our manufacturing plant, which were one-time expenses as we written.

Okay. I mean were they administrative costs mostly? Or were they kind of physical costs where you were putting new things into place?

It's not new things, but they obviously strengthened some of the processes and the administrative costs around the submission.

Okay. Got it. Got it. And there was a big favorable swing in contract liability. I just wanted to make sure that was in the cash flow statement. I wanted to make sure that was related to the future milestone payment that you received?

This is one aspect. In August, since there is also manufacturing of goods for Chiesi, which, since the BLA approval got delayed, this is also part of the contractual liabilities there.

Okay. Yes, I think there was a swing of about $16 million in the quarter. Also, did you happen to notice the EMA approval of Galafold for children aged 12 and older? Does that shed any light on the potential pathway for a pediatric approval of PRX-102? I understand it is a different class of drug, but are there any insights from that that might assist you in pursuing the pediatric indication for PRX-102 in the future?

This is old. I don't know. I actually don't think it's a headwind. I hope it helps. I don't really know.

Okay. Yes, I was thinking of that when something like that gets approved, it kind of shows what the EMA is concerned about and what they want to see?

Probably favorable. But as long as they find that PRX-102 does have a potential room as an alternative in the market, I assume it will be discussed and hopefully approved also for pediatric.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Dror Bashan for closing remarks.

So all I ask is that everybody will continue to be safe during this COVID situation, and thank you very much for the time. We will keep updating you. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you very much for your participation, and have a great day.

Thank you.