Protalix BioTherapeutics, Inc. Q2 FY2022 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Protalix Second Quarter 2022 Financial and Business Results Conference Call. As a reminder, this conference call is being recorded. I will now turn the conference over to our host, Mr. Chuck Padala of LifeSci Advisors, Investor Relations for Protalix. Thank you. You may begin your conference.

Thank you, operator, and welcome to the Protalix BioTherapeutics second quarter 2022 financial results and business update conference call. With me today are Dror Bashan, President and CEO of Protalix; and Eyal Rubin, Senior Vice President and Chief Financial Officer. The press release announcing the results and the update was issued this morning and is available now on the Protalix website. Please take a moment to read the disclaimers 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 these statements made. Factors that could cause actual results to differ are described in the disclaimer and in the Protalix' filing with the U.S. Securities and Exchange Commission. I will now turn the call over to Mr. Dror Bashan. Dror?

Thank you, Chuck, and welcome, everyone, to our second quarter 2022 financial results and business update call. I will begin with a review of our progress and accomplishments over the second quarter, along with our plans for the coming months. Following my remarks, Eyal will provide a more detailed review of our financial results. Let me begin with a review of our Phase III BALANCE clinical trial for PRX-102 for the treatment of Fabry disease in adults. In April, we announced positive top line results from the trial, showing that PRX-102 successfully met its primary endpoint on kidney function and presented a favorable tolerability and immunogenicity profile. I'm happy to report that the clinical study report, which is also called the CSR for the BALANCE trial has been completed. The final analysis of the BALANCE study confirms the positive top line results and favorable tolerability profile. These encouraging results highlight our confidence that PRX-102 has the potential to become an important treatment option for patients with Fabry disease. We are excited to move closer to potential approval of PRX-102 and then the commercial launch. The BLA resubmission will include the positive results from our three completed Phase III clinical trials, the BALANCE, the BRIDGE, and the BRIGHT as well as our Phase I/II safety study. With respect to PRX-102 MAA submitted to the EMA, we are working closely with Chiesi Global Rare Disease to advance the review process. The MAA was submitted earlier this year in February of 2022. This is an exciting time for Protalix. As we move closer to a potential approval for PRX-102 for the treatment of Fabry disease, we believe that the totality of our clinical data, which is based on hundreds of years of aggregate patient exposure, demonstrates that PRX-102 can be an important new treatment option for patients with Fabry disease. Chiesi, our global partner, has been working on the commercialization plan to provide a solid foundation to successfully bring PRX-102 to the market upon its anticipated approval. With regard to our broader pipeline, we continue to invest in new product candidates to support our goal of becoming a significant biotherapeutic company. To that end, we have established a pipeline of early-stage programs in development from discovery stage to Phase I, which will start in early next year. All of these programs involve molecules that we expressed for ProCellEx, our proprietary protein expression system, which enables us to express and develop potential products that will address real unmet needs in the market. In parallel, we continue to work to improve our technological capabilities, both on the ProCellEx system and in the chemical modifications area. We are moving forward with PRX-115, a novel PEGylated uricase for treating severe gout patients. The first in-human Phase I study is planned to commence in the first quarter of 2023. As support for this first in-human study, we are finalizing our toxicology package, of course. With respect to PRX-119, we have conducted several experiments and preclinical studies to demonstrate the feasibility of PRX-119, and we look forward to providing updates on these and additional programs as they progress. Our 2022 Annual Meeting of Stockholders was held on June 30, 2022. At the meeting, our stockholders approved all of the items on the agenda. In addition, our Board of Directors appointed Shmuel Ben Zvi, or Muli, to be a member of the Board of Directors. As David Granot's tenure on the Board ended as of the meeting. On behalf of Protalix, I would like to thank David for his dedicated service to our company and wish him the best in his future endeavors. Muli has extensive financial and economic knowledge as well as considerable management business and auditing experience. Muli is now the Chairman of our Audit Committee and a member of the Compensation Committee. We are very happy to welcome Muli to Protalix. Finally, our balance sheet provides us with sufficient cash runway to the third quarter of 2023, enough to support our plans for resubmission and potential approval, in addition to continuing to develop our early-stage pipeline programs. 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 today's call. Let me review our second quarter 2022 financials. For the quarter ended June 30, 2022, we recorded revenue from the sale of goods of $3.4 million, an increase of $0.2 million, or 6% compared to the revenues of $3.2 million for the same period of 2021. Revenues from licenses and R&D services for the quarter ended June 30, 2022, were $5.4 million, an increase of $2.2 million, or 69% compared to $3.2 million for the quarter ended June 30, 2021. Revenues from licenses and R&D services are comprised primarily of revenues we recognized in connection with the Chiesi agreements. Cost of goods sold was $4.1 million for the three months ended June 30, 2022, a decrease of $0.6 million or 13% versus $4.7 million for the same period last year. The decrease in cost of goods sold was primarily due to a decrease in manufacturing costs due to higher yields and lower wastage. Research and development expenses for the three months ended June 30, 2022, were $7.6 million, a decrease of $0.1 million, or 1% compared to $7.7 million for the same period last year. Selling, general and administrative expenses were $2.6 million for the three months ended June 30, 2022, a decrease of $0.6 million, or 19% versus $3.2 million for the same period last year. The decrease resulted primarily from a decrease in salary-related and selling costs. Financial income, net, was $0.2 million for the three months ended June 30, 2022, compared to financial expenses, net, of $2.1 million for the same period last year. The decrease resulted primarily from lower interest and debt amortization costs due to a decrease in our outstanding notes from an aggregate principal amount of $57.92 million of 2021 notes to an aggregate principal amount of $28.75 million of 2024 notes, and an increase in the exchange rate of new Israeli shekel for U.S. dollars over the period. As of June 30, 2022, our cash, cash equivalents, and short-term bank deposits were approximately $28.6 million compared to $39 million as of December 31, 2021. We believe that our current financial position provides us with sufficient cash runway through the third quarter of 2023. I will now turn the call back to you, Dror.

Thank you, Eyal. So thank you everyone for joining us on today's call. I will now turn it back to the operator to open the line for questions, please.

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

This is Boobalan dialing in for Ram Selvaraju. A few from us. So firstly, now that your clinical analysis is complete, what needs to occur from now until the BLA filing?

So actually, this is part of the process. I mean, the CSR is part of the package that is being composed together with the other clinical trials and additional data, of course, and other aspects that will be a part of the resubmission later this year to the FDA.

Have you conducted any physician-based market research study and discuss the target product profile and potential appealability of PRX-102 for Fabry disease?

So if you think from a marketing point of view, it is clearly the main data of Chiesi. And I'm positive, they are doing a very thorough job regarding the potential launch or approval next year. They take it very seriously. For them, it's a very high-priority asset. And they will do everything they can to ensure a successful launch.

I was wondering if you could share if Chiesi has done any market research focusing on U.S. physicians and then maybe you can share some findings with this?

I don't have anything at the moment. Clearly, you can approach Chiesi. And also, we can discuss it at a different time, of course.

What's your status in terms of CMC capabilities? Do you or your commercial partner have plans to expand capacity further?

I mean currently, the capacity we have is supposed to be enough, even more than enough, if I may say, to support the market. There's no issue. I mean it's supposed to be able to capture at least 50% of the market. Let's achieve 50% of that, and then we can decide if we expand or not.

Can you remind us of the potential milestones and breakdown of regulatory commercial for PRX-102?

Yes. So the milestones, the agreement is confidential and there's a reason for that. So obviously, we cannot share it with the public.

Our next question comes from the line of John Vandermosten with Zacks.

Want to start out with a question on a recent journal article that I was reading through an orphan, and it looked at the current treatments in Europe for Fabry disease. They found a tremendous shortcoming with what's offered right now. They particularly pointed out pain and temperature intolerance were two of the items that were noted. Can PRX-102 address those issues better than existing therapy?

I don't know if we can say that we have compared to all three drugs on the market. We looked into pain as part of our clinical program, especially in the BALANCE trial. The data that we have there will be shared with the authorities. As you know, our main endpoint is measured by EGFR. Our main endpoint is not a pain questionnaire or something like this. However, we do address the pain aspect as well.

Yes. I mean obviously, there's something missing there and perhaps PRX-102 can address that. Second question is just on the opportunity for combination therapy in the Fabry space. That's a trend in some other indications. I'm wondering if that's something that might be possible for Fabry?

I don't know. It could be. It has to be, of course, checked on a clinical trial. I think the overall indication, although it's well known for many years, still evolves. There are more developments happening right now in the pipeline, mainly in the early stage, but still way more than, let's say, five to ten years ago. I am sure going forward, there may be some companies that will go for potential combinations. The question is with what? Is there a benefit from gene therapy? It could be, but there should be scientific justification to initiate such a study. I'm not aware of anything as of now, let's put it this way.

Looking to the future, my next question pertains to Gaucher and Pfizer. I reviewed the revenues reported for the second quarter and it appears that Pfizer is on an upward trend. Considering this, with the Shire drug losing its exclusivity in Europe this month, does this create an opportunity for Pfizer to broaden their presence in Europe?

It's true that the exclusivity period ends soon. Pfizer is clearly aware of this. We have discussed it in the past. It's up to them and their decision on whether and how to enter Europe.

It seems they are aware of the situation. This represents a significant opportunity, as the EU ranks second in market size after the United States. Additionally, it appears they are gaining momentum.

It's true that there are at least three enzymes that have been available in the market for many years, with two in Europe and three in the U.S. They perform a similar function overall. Fortunately, the science behind these enzymes and enzyme replacement therapies is effective, allowing patients to live comfortably and maintain a good quality of life for many years, which is uncommon. This is not due to the rarity of the disease, but rather the positive outcomes for treated patients, such as those with Gaucher disease. To enter a market like the U.K. or Germany, one would need to offer something distinct. Competing is challenging today with two major players who have been in the market for a long time: Shire and Genzyme, or Takeda and Sanofi. I believe Pfizer is seriously and thoroughly considering their options and will make their decisions accordingly.

And the last one is for you. You mentioned that the gross margin had improved due to some factors. Improvements in efficiency, I guess, you could generalize. Is that something that will continue going forward? Or is that just a one-time kind of benefit that you are experiencing? How do you see that going?

It depends. Partially, it's a consistent trend that we'll see benefits going forward. Part of it is the yield. We don't control the yield. Sometimes you get an outstanding yield that you don't even anticipate, which breaks all records. Usually, some part of it will remain, while some might disappear.

It seems like there may be a slight increase due to certain factors, but other factors could be unpredictable, making it difficult to determine if they will persist.

Yes, that's true.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Dror Bashan for closing remarks.

Thank you. I would like to thank everybody again for their time, and we will clearly update you when we have something to share with the market. Looking forward to speaking with you next time. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.