Protalix BioTherapeutics, Inc. Q1 FY2024 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Protalix BioTherapeutics First Quarter 2024 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. Mike Moyer of LifeSci Advisors, Investor Relations for Protalix. You may begin your conference.

Thank you, operator, and welcome to the Protalix BioTherapeutics First Quarter 2024 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. A press release announcing the results and the business and clinical updates was issued this morning and is available now 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 Protalix's filings with the U.S. Securities and Exchange Commission. I will now turn the call over to Dror Bashan. Dror?

Thank you, Mike, and welcome, everyone, to our First Quarter of 2024 Financial Results and Business Update Call. I will begin by reviewing our recent accomplishments before handing the call to Eyal, who will provide a more detailed review of our financial results. And we will then open the line for questions. I will turn first to PRX-115. As announced this morning, given the encouraging initial top line results from the first 7 cohorts of the company's Phase I first-in-human study of our recombinant uricase candidate, PRX-115, and following the review and acceptance of the safety data by the safety and monitoring committee, the company has decided to expand the study by adding an eighth cohort. Consistent with the initial 7 cohorts, the new cohort will consist of 8 new subjects and will analyze a higher dose of PRX-115 and the potential of a higher dose resulting in increased exposure time. In addition to the extension of the first-in-human study, the company also decided to commence preparations for a Phase II clinical trial of PRX-115. PRX-115, to remind you, is a recombinant PEGylated uricase product candidate produced using our ProCellEx cell platform. The study is a double-blind, placebo-controlled, single ascending dose, first-in-human Phase I clinical trial that the company designed to evaluate the safety, pharmacokinetics, and pharmacodynamics following a single dose of PRX-115 in subjects with elevated uric acid levels. Of the 56 randomized subjects enrolled in this study across 7 cohorts, 42 subjects were treated with PRX-115 and 14 subjects were treated with placebo. Gout is the most common inflammatory arthritis, and it affects approximately 14 million adults in the U.S., over 7 million in Europe, and over 190 million in China. It is estimated that about 5% of the gout patients are considered to have chronic refractory disease. The preliminary results from the first 7 cohorts demonstrate that exposure to PRX-115 increased in a dose-dependent manner, and that PRX-115 rapidly reduced plasma uric acid concentration to below 6 milligrams per deciliter over time following a single administration. With regard to safety, PRX-115 was found to be well tolerated. 26% of the subjects treated with PRX-115 reported study-related adverse events, and the majority of these were mild to moderate and transient in nature. One subject in cohort #2 experienced an anaphylactic reaction immediately following the start of the infusion, but the reaction was fully resolved. There were no other serious adverse events reported, and no adverse events were reported in the highest-dose cohorts, #6 and #7. We look forward to updating you on the full results from the expanded trial following the completion of the new cohort. Our next pipeline candidate also being expressed for ProCellEx is PRX-119. PRX-119 is a PEGylated recombinant human DNase I candidate in development for the potential treatment of diseases associated with neutrophil extracellular trap, or NETs. Excessive formation and accumulation of the NETs can result in different pathological effects and has been observed with various autoimmune, inflammatory, and fibrotic conditions. Animal studies with PRX-119 have shown that our product candidate has the potential to be an effective treatment for these conditions, and additional preclinical studies of PRX-119 are ongoing. In addition to PRX-119 and PRX-115, the company is focusing its research and development efforts on early-stage development assets to build its product development pipeline. We look forward to providing you with updates on potential development candidates as they become more mature. Finally, as you know, our second approved drug, Elfabrio, continues to gain regulatory approvals for the treatment of adult patients with Fabry disease. Most recently, in January of this year, it was approved in Israel. And our commercial partner, Chiesi Global Rare Disease, is committed to successful commercialization of Elfabrio, with launches underway in the United States, throughout the European Union, the U.K., Switzerland, Israel, and additional markets where approvals were granted. We are confident that Chiesi will continue to position Elfabrio for success, and we look forward to the continued growth of the Elfabrio franchise. Before turning the call to Eyal, I want to emphasize that our strong cash position provides us with sufficient cash to enable the repayment of our convertible notes due in September of this year and for our ongoing operations. In addition, we expect sales to Chiesi to gradually continue as they anticipate future approvals and launches in additional countries. With that, it is now my pleasure to turn the call over to Eyal for a review of the financials. Please, Eyal.

Thank you, Dror, and thank you, everyone, for joining today's call. Let me review our first quarter 2024 financials. We recorded revenues from selling goods of $3.7 million for the 3 months ended March 31, 2024, a decrease of $1.4 million or 27% compared to revenues of $5.1 million for the 3 months ended March 31, 2023. The decrease resulted primarily from a decrease of $1.1 million in sales to Pfizer and a $0.3 million decrease in sales to Brazil, which resulted primarily from the timing of delivery. We recorded revenues from license and R&D services of $0.1 million for the 3 months ended March 31, 2024, a decrease of $4.4 million or 98% compared to revenues of $4.5 million for the 3 months ended March 31, 2023. Revenues from license and R&D services are comprised primarily of revenues we recognized in connection with the Chiesi agreement. The decrease resulted primarily from the completion of our research and development obligations with respect to Elfabrio, and as Elfabrio was approved in the U.S. and the EU in May 2023, from the completion of the regulatory processes related to the review of the BLA and the NDA for Elfabrio by the FDA and the EMA, respectively. Cost of goods sold was $2.6 million for the 3 months ended March 31, 2024, a decrease of $0.5 million or 16% from cost of goods sold of $3.1 million for the 3 months ended March 31, 2023. The decrease in cost of goods sold was primarily the result of the decrease in sales to Pfizer and to Brazil. For the 3 months ended March 31, 2024, our total research and development expenses were approximately $2.9 million, comprised of approximately $0.5 million in subcontractor-related expenses, approximately $1.5 million in salary-related expenses, approximately $0.2 million in materials-related expenses, and approximately $0.7 million in other expenses. For the 3 months ended March 31, 2023, our total research and development expenses were approximately $5.8 million, comprised of approximately $3.5 million in subcontractor-related expenses, approximately $1.5 million in salary-related expenses, approximately $0.1 million in material-related expenses, and approximately $0.7 million in other expenses. The total decrease in research and development expenses for the 3 months ended March 31, 2024, was $2.9 million or 50% compared to the 3 months ended March 31, 2023. The decrease in research and development expenses primarily resulted from the completion of our Fabry clinical program and the regulatory processes related to the BLA and the NDA review of Elfabrio by the applicable regulatory agencies. Selling, general and administrative expenses were $3.1 million for the 3 months ended March 31, 2024, consistent with the 3 months ended March 31, 2023. Financial income, net, was $0.1 million for the 3 months ended March 31, 2024; compared to financial expenses, net, of $0.5 million for the 3 months ended March 31, 2023. The change resulted primarily from high-interest income on bank deposits and lower notes interest expenses due to note conversions executed in 2023. For the 3 months ended March 31, 2024, we recorded a tax benefit of approximately $0.1 million compared to income taxes of $0.2 million for the 3 months ended March 31, 2023. The income taxes recorded are primarily from the provision for current taxes and income mainly derived from U.S. taxable global intangible low-taxed income, GILTI, mainly in respect of Section 124 of the U.S. Tax Cuts and Jobs Act. Cash and cash equivalents and short-term bank deposits were approximately $48.5 million at March 31, 2024. As Dror mentioned, we believe our cash position is sufficient to enable the repayment of our convert notes due September 2024 and for our ongoing operations. Net loss for the 3 months ended March 31, 2024, is approximately $4.6 million or $0.06 per share, basic and diluted; compared to a net loss of $3.1 million or $0.05 per share, basic and diluted, for the same period in 2023. I will now turn the call back to you, Dror.

Thanks, Eyal. In closing, I would like to express my confidence in Protalix and its current standing. We have reviewed with you our strong cash position. We have 3 streams of revenues: Sales to Brazil; sales to Pfizer; and, of course, sales to Chiesi. We are pleased with the interim results from our PRX-115 clinical study, and we look forward to the continued momentum through the rest of this year. We are continuing to leverage our expertise to develop a pipeline of early stage assets with the potential to address rare diseases with high unmet needs. We look forward to updating you on our progress as we continue to drive innovation and create long-term value for both patients and stakeholders. Now I would like to ask the operator to open the line for questions.

And the first question comes from Ram Selvaraju with H.C. Wainwright.

I wanted to ask specifically about PRX-115 and whether you could delineate for us the specific gout subpopulation in which you anticipate this drug candidate might be utilized if approved, and what the competitive landscape currently looks like. As well as what types of advantages you anticipate 115 might have against those drugs. I think in particular, we are talking about a commercially available product called KRYSTEXXA. So perhaps you can enumerate for us whether you believe 115 will have advantages on efficacy, safety, and convenience, or if you anticipate advantages on only 1 or 2 of the 3 categories. And how you expect the drug's advantages to ultimately demonstrate themselves. I realize that it's relatively early in the drug's development process, but I was hoping you could enlighten us on those parts.

So thanks, Ram. As you know, we have finalized the first 7 cohorts. The first, it's a single-dose study, so we want to be careful. But still, we are optimistic. We're moving to cohort #8, as we mentioned. And we are potentially thinking that this drug candidate will address, I would say, uncontrolled gout patients. As mentioned, we initiated the preparations for a Phase II study, which will be, of course, a multiple-dose study, and we will be much smarter. Right now, we hope to see, and I want to be careful, improved safety and better frequency of the drug. From efficacy, by the end of the day, we want to reduce the uric acid, of course, below 6 or way below 6, in a way that will be as consistent as possible throughout a full year or along the years. But let's see. We think that the results we see right now are encouraging. This is why we move on, we did not close the study or put a CSR. And of course, we discussed it not only with the safety component, but also with our Board; we got the green light to prepare a Phase II. Right now, today, as you know, KRYSTEXXA is on the market with an administration once every 2 weeks, as far as we know. And there is a product by Sobi that's supposed to enter the market, I don't know, next year, something like this.

Just to clarify, assuming that you move into Phase II, would you expect the efficacy endpoints used in Phase II to include things like reduction in flares or reduction in tophi? And are you expecting to be able to position 115 as a competitor, a direct competitor to KRYSTEXXA? Or do you expect ultimately 115 to be utilized in patients who either are not considered candidates for KRYSTEXXA because of some safety concerns or are refractory to KRYSTEXXA?

I think first, we have to finalize, of course, and we are planning a meeting with the regulators, both in the U.S. and the EU, to address our potential design of the Phase II and the overall clinical program. Then I think we will be smarter to answer you on the first one. On the second one, yes, the intent is indeed to compete in the market for uncontrolled gout patients.

The next question is from John Vandermosten with Zacks.

So for 115, I believe the patients are infused once and then you're observing them over a 3-month period. How do the PK levels trend over that period?

You're asking about the first 7 cohorts?

Yes, exactly. Yes. And I'm assuming that there's probably a similar decline, right?

So we did not yet. We wanted to show the full picture once we have the full data of all 8 cohorts. So once we have everything together, including of course the safety data, which is most important, we will share it properly. And we didn't want to show, I would say, a half job.

Okay. And does that 3-month period seem like the right interval to use, or maybe more frequently? And as you mentioned, one of the competitors has a much shorter interval between dosing, and that does seem like a little bit longer period of 3 months. Do you think, in the future, it might change for the Phase II? Or how do you think about that?

So John, maybe I missed. What do you mean by 3 months? Can you repeat it, please?

So yes, just looking at the trial design in the clinical trials, I think you're observing patients over a 3-month period with one infusion. And I'm wondering what the ultimate infusion periodicity would be based on what you've seen so far.

Well, I think I don't follow your question. I'm very sorry.

No problem. We can follow up...

No, no, please. What we see, and we are very much encouraged is good results reducing the uric acid level, of course, fast and significant. And therefore, we move into cohort #8. Once we have all the data, we will share it transparently, of course.

I think, John, the fact that we are monitoring patients over 3 months doesn't necessarily indicate that the infusion intervals are going to be once every 3 months. Obviously, we have to follow, as Dror mentioned, the full set of data, the PK, the PD, and the safety, and then make a judgment call ahead of the Phase II, obviously, what the interval or what the dosing is going to be.

Okay. Great. And then you had mentioned that one of the patients experienced an anaphylactic reaction. What did you do to alleviate it? It seems like it was easily resolved, but I was just wondering if there were any specific characteristics of that patient? Or if it was...

It was either the first or second patient in cohort #2. Six minutes into the infusion, a reaction occurred, but it was resolved quickly by the physicians and the team at the center. This was the only instance of such a reaction. Overall, most of the side effects were mild to moderate, and in cohorts #6 and #7, no adverse events were recorded.

Okay. And then looking ahead to a Phase II, I think you just have sites in Australia right now. I guess as you look towards a more advanced trial, would those sites be more scattered around the globe? And are there any particular geographies that look attractive for that?

We haven't made a final decision yet, but we are down to a few candidates for the CRO position. We are likely to expand our operations to the U.S. and other continents as well.

Okay. Sounds good. And then there was also a mention of looking forward R&D spend. And I guess the 3 areas are 115, 119, and other early stage assets. And how do you think about the breakdown of R&D towards those 3 different areas? I mean, it sounds like probably 115 is going to be the main consumer of R&D. But what about the other two?

Yes. The primary focus of our R&D spending will be on product 115. We are cautious with our expenditures. At the end of the quarter, we have about $48 million, which is sufficient to cover our debt by the beginning of September this year. This means that by the end of the year, starting from September, we will operate without debt and with enough cash to sustain our operations. This is why PRX-115 is our largest R&D cost. Additionally, we will invest in early research candidates to address significant unmet needs in existing diseases. However, we do not intend to expand beyond our capabilities at this time, as it is important for us to keep the company stable. We benefit from three streams of revenue and expect sales to Chiesi to gradually increase, and we are confident in their performance. This steady growth will strengthen our financial position.

Got it. Looking at the cash flow statement, there was an increase in contract liability that contributed to positive cash flow from operations. Eyal, could you clarify what this increase in contract liability was related to?

Yes. So as I mentioned a couple of times in the past, our sales to Chiesi are based on their projections. And as Dror mentioned, we feel, believe, and we see evidently they are doing a good job in terms of penetration. But the orders that they're putting obviously depend on their levels of inventory and the timing of the release of the batches. As you all know, Chiesi is also the fill and finish factory contractor. So the increase in contractual obligation is batches that they, basically Chiesi, are releasing now, but they already paid for, and it's going to go obviously into revenues in the next quarter or two. So we didn't record the revenues there, but the cash is there. Obviously, cash doesn't grow on trees. The effect that the cash grew, as you mentioned, on contractual obligations means that they keep on selling, and we keep on selling to them. And as Dror mentioned, gradually, we believe that they're going to take a significant market share and position themselves in a very strong and meaningful way.

Great. Very good. And last question regarding the study in Japan. I know you're not conducting that, but I was wondering if Chiesi had given you any indication on when a BLA might be submitted to the Japanese authorities.

I don't have the details. Eyal, maybe you have? As far as I know, the study is ongoing.

Yes. The study is ongoing. Obviously, we have the data. We know how many patients were enrolled. But since it's Chiesi proprietary data, obviously, when I'm allowed to share it. They are working, as Dror mentioned and I mentioned a couple of times, we see the progress, and we see the seriousness in terms of the trials they are conducting, the robustness of the programs, and obviously the commercial operations on the ground both in the U.S. and out of the U.S. So as soon as they complete the study, they will probably announce or allow us to announce the BLA submission in Japan.

Okay. Great. And is Chiesi already selling some rare disease products in the Japanese market?

I don't control that. I'm sorry.

I understand they have various products, but I haven't looked that up. Thank you for answering my questions.

At this time, there are no additional questions. I will hand the floor back to management for any further remarks.

So all I have to say is thank you again for the time. And actually, we will look forward to updating you on the next development of the company. And of course, we will meet at the next earnings later this year in August. So thank you very much. And that's it.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.