Earnings Call Transcript - PLX Q4 2023

Operator, Operator

Good morning, ladies and gentlemen and welcome to the Protalix BioTherapeutics Fiscal Year 2023 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, Ms. Lauren Merrick of LifeSci Advisors, Investor Relations for Protalix. You may now begin.

Lauren Merrick, Investor Relations

Thank you, Rob, and welcome to the Protalix BioTherapeutics fiscal year 2023 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 update 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 Mr. Dror Bashan. Dror?

Dror Bashan, President and CEO

Thank you, Lauren, and welcome everyone to our fiscal year 2023 financial results and business update call. I will begin by reviewing our accomplishments over the past year and recent progress. Following my remarks, Eyal will provide a more detailed review of our financial results. We will then open the line for questions. 2023 marks a significant year for Protalix as we received regulatory approval for our second drug, Elfabrio, for the treatment of adult patients with Fabry disease. In May of 2023, both the FDA and the EMA approved Elfabrio for this treatment. Since then, Elfabrio has received additional regulatory approvals in markets such as the UK, Sweden, and most recently in Israel. Our commercial partner, Chiesi Global Rare Diseases, is focused on the commercial launches that are currently underway in the United States, the European Union, the UK, and other markets where approvals have been granted. We are confident that Chiesi will continue to position Elfabrio for success, and we look forward to the continued growth of our Elfabrio franchise. Elfabrio is now the second approved drug expressed using our proprietary plant-based protein expression system, Protalix, highlighting the success of our unique platform. With these significant milestones behind us, we are supporting Chiesi's operations while continuing to focus on building our pipeline of innovative assets for treating genetic and non-genetic rare diseases. Our next clinical development candidate is PRX-115, being developed for the potential treatment of severe gout. PRX-115 is a recombinant pegylated uricase product candidate produced using our Protalix platform. In March of 2023, we initiated a Phase 1 first-in-human clinical trial of PRX-115 to evaluate its safety, pharmacokinetics, pharmacodynamics, and immunogenicity. This is a double-blind placebo-controlled single ascending dose study being conducted in New Zealand with approximately 56 patients who have elevated uric acid levels. We are pleased to announce that the trial is now fully enrolled, and we expect to report preliminary results from this study in the second quarter of 2024. Our next pipeline candidate, also expressed via Protalix, is PRX-119, a pegylated recombinant human DNS1 candidate being developed for the potential treatment of diseases associated with neutrophil extracellular traps, or NETs. Additional preclinical studies are ongoing, and we will update you accordingly. Besides PRX-115 and PRX-119, we have multiple preclinical programs in progress, and we look forward to providing updates on these potential development candidates as they advance. On the corporate side, in 2023, we welcomed Dr. Eliott Foster as Chairman of our Board of Directors and a member of our nominating committee. Dr. Foster succeeded [indiscernible] who retired, and we are grateful for the dedication and leadership since the founding of Protalix. We are thankful for Eliott's contributions thus far as we prepare for an exciting phase of development for the company. Finally, before turning the call over to Eyal, I want to note that our strong balance sheet provides us with sufficient cash runway to support our operations, and as Eyal will discuss, sales of Elfabrio to Chiesi increased after its regulatory approval while Chiesi builds its inventories to support a successful launch. We expect sales to gradually continue as they anticipate future approvals and launches in additional countries worldwide. With that, it is now my pleasure to turn the call over to Eyal for a review of our financials.

Eyal Rubin, CFO

Thank you, Dror. And thank you everyone for joining today's call. Let me review our fiscal year 2023 financials. We recorded revenues from selling goods of $40.4 million for the year ended December 31, 2023, an increase of $15.1 million or 60% compared to revenues of $25.3 million for the year ended December 31, 2022. The increase resulted primarily from an increase of $14.1 million in sales of Elfabrio drug product to Chiesi following the approval by the FDA and the EMA of Elfabrio, as Dror described, and an increase of $0.1 million in sales to Pfizer and $0.9 million in sales to Brazil. We recorded revenues from license and R&D services of $25.1 million for the year ended December 31, 2023, an increase of $2.8 million or 13% compared to revenues of $22.3 million for the year ended December 31, 2022. The increase resulted from the $20 million regulatory milestone payment from Chiesi in connection with the FDA approval of Elfabrio, which was partially offset by a decrease of $17.2 million in revenues recognized in connection with the R&D performance obligation under the Chiesi agreement as the company completed the Phase 3 clinical program thereunder. Revenues from license and R&D services represent primarily the revenues the company recognized for services provided under the Chiesi agreement. Cost of goods sold was $23 million for the year ended December 31, 2023, an increase of $3.4 million or 17% compared to cost of goods sold of $19.6 million for the year ended December 31, 2022. The increase in cost of goods sold was primarily the result of an increase in sales of goods for Chiesi, Brazil, and Pfizer. Sales to Chiesi included certain drug substance costs, which had already been recognized as research and development expenses as they were produced as part of the research and development activities. Accordingly, the related cost of goods sold does not include the cost of supplies. For the year ended December 31, 2023, the company total research and development expenses were approximately $17.1 million, comprised of approximately $6.3 million subcontractor-related expenses, approximately $7.8 million of salary-related expenses, approximately $0.6 million of material-related expenses, and approximately $2.4 million of other expenses. For the year ended December 31, 2022, the company’s total research and development expenses were approximately $29.3 million, comprised of approximately $17.8 million in subcontractor-related expenses, approximately $7.3 million of salary-related expenses, approximately $1.4 million of material-related expenses, and approximately $2.8 million of other expenses. The decrease in research and development expenses was $12.2 million or 42% for the year ended December 31, 2023, compared to the year ended December 31, 2022. The decrease in research and development expenses resulted primarily from an $11.5 million decrease in subcontractor-related expenses in connection with the PRX-102 clinical trials and a $0.8 million decrease in materials-related expenses. Selling, general, and administrative expenses were $15 million for the year ended December 31, 2023, an increase of $3.3 million or 28% from $11.7 million for the year ended December 31, 2022. The increase resulted primarily from an increase of approximately $2.3 million in one-time cash bonuses, share-based compensation, and salary-related expenses, as well as an increase of $0.3 million in travel, conferences, and employee training expenses. Financial expenses net were $1.9 million for the year ended December 31, 2023, an increase of $0.5 million or 36% compared to financial expenses of $1.4 million for the year ended December 31, 2022. The increase was primarily due to a decrease of $0.9 million in income related to exchange rates, as well as an increase in interest expenses of $0.7 million, which was partially offset by a gain recognized due to the conversion of a portion of the 2024 notes of $0.4 million and a $0.6 million increase in interest income. For the year ended December 31, 2023, we recorded income taxes of approximately $0.3 million, a decrease of $0.2 million or 40% compared to tax expenses of $0.5 million for the year ended December 31, 2022. The income taxes resulted primarily from the provision for current taxes and income mainly derived from U.S. taxable global intangible low tax income duty, mainly in respect of Section 174 of the U.S. Tax Cuts and Jobs Act effective in 2022. Section 174 of the TCJA requires all U.S. companies, for tax purposes, to capitalize and subsequently amortize R&D expenses that fall within the scope of Section 174 over 5 years for research activities conducted in the United States and over 15 years for research activities conducted outside of the United States rather than deducting such costs in the current year. The net income taxes give effect to a valuation allowance release equal to approximately $3.1 million. Cash and cash equivalents and short-term bank deposits were approximately $44.6 million at December 31, 2023. Net income for the year ended December 31, 2023, was approximately $8.3 million or $0.12 per share basic and $0.09 per share diluted compared to a net loss of $14.9 million or $0.31 per share basic and diluted for the same period in 2022. I will now turn the call back to you, Dror.

Dror Bashan, President and CEO

Thank you, Eyal. I would like to conclude by expressing how proud we are of all that Protalix has accomplished throughout 2023. With two drugs expressed via our proven platform now approved, we are continuing to build our expertise to develop a type of assets that can potentially transform the treatment of rare diseases. I am grateful for a world-class team who constantly demonstrates unwavering commitment to our mission. We look forward to updating you on our progress as we continue to drive innovation and create long-term value for the patients and stockholders. Now, I would like to ask the operator to open the call for questions.

Operator, Operator

And our first question comes from the line of John Vandermosten with Zacks. Please proceed with your question.

John Vandermosten, Analyst

Great. Thank you and good afternoon Dror and Eyal. If I start off with a question about some of the PRX-102 studies that are ongoing, I noticed you had one in Japan and one in the United States for pediatric patients. Can you give us a timeline on how long those might take and what the next steps would be there to get approvals for Japan and for pediatric indication?

Dror Bashan, President and CEO

So, thank you, John. Actually, this study is conducted by Chiesi, and this is their responsibility. So, I don’t have the timeline in front of me, of course. And it is up to them to address that. But you can understand that they put a lot of attention and resources into expanding this franchise, which is clear.

John Vandermosten, Analyst

Yes. Great. It sounds like they have a lot of opportunities out there. And also, you may not have gotten a lot of information from Chiesi on this, but when you look at your revenues and expenditures for the year, how should we think of those balancing out in terms of free cash flow on the bottom line? Are they going to be pretty equal based on the view right now? Is that how you are planning going forward?

Eyal Rubin, CFO

Hey. Thanks for the question, John. So, I don’t know what equal means. But as Dror mentioned, gradually, we expect the sales to obviously grow. And in terms of the free cash flow, it depends on how much money you are going to invest in early-stage and later-stage R&D. As I mentioned in previous calls, the sales to Chiesi are comprised of an inventory buildup as well as obviously, commercial sales to the enrolled commercial patients. We expect that these sales are going to eventually grow, and gradually, we will get to the place, as we indicated in our presentation, that we believe Chiesi can perform well in the market.

John Vandermosten, Analyst

Got it. And then looking at PRX-115, you had mentioned that there are going to be results from that, it seems like in the next couple of weeks. What – assuming those are positive, what are the next steps for that program? Is that Phase 2, or might there be some other pursuit there?

Dror Bashan, President and CEO

So, if indeed, we continue to go forward, of course, when we move into Phase 2, yes.

John Vandermosten, Analyst

Okay. And would that be before the end of this year that you would start that Phase 2?

Dror Bashan, President and CEO

This depends – I think it will be between the end to the first half of next year, yes.

John Vandermosten, Analyst

The first half of next year, okay. Got it. And then last question on PRX-119. What are the next steps for that? Is that something you might put into the clinic this year?

Dror Bashan, President and CEO

Not yet. We are looking into the right indication to continue with. I think this will take a bit more time to decide.

John Vandermosten, Analyst

Okay. And then any other milestones on the R&D side that we should think about as we progress through 2024?

Dror Bashan, President and CEO

Once there is something to update, we will update, of course. We are not exactly sitting on our hands. I think we will be actively working to ensure that we can add additional early-stage assets. It just takes time, and I hope we will make the right moves that make sense.

John Vandermosten, Analyst

Okay. Alright. Thank you, Dror. Thank you, Eyal for your answers.

Dror Bashan, President and CEO

You're welcome.

Operator, Operator

Thank you. At this time, there are no additional questions. Would you like to make any further remarks?

Dror Bashan, President and CEO

This is Dror speaking. I just would like to thank everybody again for the time, and again, to thank our shareholders and our employees for their support as we move forward with our commitment. Of course, we will update you accordingly on any sort of development, and we will meet in the next earnings update. Thank you.

Operator, Operator

This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Eyal Rubin, CFO

Thank you.