Earnings Call Transcript - PLX Q3 2023

Operator, Operator

Good morning, ladies and gentlemen. And welcome to the Protalix Biotherapeutics Third Quarter 2023 Financial and Business Results Conference Call. As a reminder, this conference is being recorded. I will now turn the conference over to our host, Mr. Chuck Padala of LifeSci Advisors, Investor Relations for Protalix. You may begin the conference.

Chuck Padala, Investor Relations

Thank you, operator, and welcome to the Protalix Biotherapeutics Third Quarter 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 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 in this teleconference includes 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 filing 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, Chuck. And welcome everyone to our third quarter 2023 financial results and business update call. Before we begin, I would like to take a moment to acknowledge the situation here in Israel. We at Protalix are horrified by the devastating events that have been taking place in recent weeks. It is an extremely challenging time, and we are heartbroken for the victims, families, friends, and loved ones, many of us being personally impacted. Our hearts and prayers go out to all those affected, and we remain dedicated to the safety and well-being of our team. We are committed to providing our families, friends, and colleagues any and all support they need at this time. At the same time, we want to reassure you that we are continuing to operate as usual. There have been no disruptions to our facilities, and we do not currently anticipate any interruption to the supply of our products Elfabrio and Elelyso. We appreciate all those who have reached out to Protalix to express their concern and support, and we thank you for joining us today. I will now review our recent progress and accomplishments. Following my remarks, Eyal will provide a more detailed review of our financial results, and then of course, we will open the line for questions. Let me now turn to our accomplishments this quarter. Since receiving FDA and EMA approval for Elfabrio, our commercial partner, Chiesi, has focused on the commercial launch in both the United States and the European Union. We are also pleased that Elfabrio has been granted additional regulatory approvals outside the EU, such as in Great Britain and Switzerland, and we look forward to continued global growth of Elfabrio. Having now secured the approval of two drug products, Elfabrio and Elelyso, we are now focusing our attention on developing our pipeline assets with the potential to address high unmet needs for patients with limited therapeutic options. Our most advanced development candidate is PRX-115 for the potential treatment of severe gout. We are currently sponsoring a Phase 1 first-in-human clinical trial of PRX-115 to evaluate its safety, pharmacokinetics, pharmacodynamics, and immunogenicity. It is a double-blind, placebo-controlled single ascending dose trial of up to 56 participants. Forty-two participants have been dosed today in this first-in-human trial. We expect to announce topline results from this study in mid-2024. We believe PRX-115 is potentially a good candidate to target this market. Our next pipeline candidate is PRX-119 for the potential treatment of NETs-related diseases. NETs are web-like structures released by activated neutrophils that trap and kill a variety of microorganisms. Excessive formation or ineffective clearance of NETs can result in different pathological effects and has been observed in various autoimmune inflammatory and fibrotic conditions. We look forward to providing updates on these programs as they progress. On the corporate side, we welcome Dr. Eliot Forster as Chairman of our Board of Directors, succeeding Mr. Zeev Bronfeld, who retired from his position on our board. As an independent director, Dr. Forster was also appointed to our nominating committee. Eliot's reputation in management and leadership in the life sciences field speaks for itself, and he has a record of success in the United States, the European Union, and Asia. We are grateful to Zeev for his dedication and leadership since the founding of Protalix many years ago, and we look forward to working with Eliot and leveraging his expertise as we enter this exciting phase of development for the company. Before turning the call over to Eyal, I want to note that our strong balance sheet provides us with sufficient cash runway to maintain current operations without the need for near-term capital infusion. With that, it is now my pleasure to turn the call over to Eyal to review our financials. Eyal, please.

Eyal Rubin, CFO

Thank you, Dror. And thank you everyone for joining today's call. Let me review our third quarter 2023 financials. We recorded revenues from selling goods of $10.2 million during the three months ended September 30th, 2023, an increase of $1.4 million or 16% compared to revenues of $8.8 million for the three months ended September 30th, 2022. The increase resulted primarily from an increase of $3 million in sales to Chiesi, following the approval by the FDA and the EMA, as Dror mentioned, of Elfabrio, and of $0.6 million in sales to Brazil, partially offset by a $2.2 million decrease in sales to Pfizer. Recorded revenues from license and R&D services of $0.2 million for the three months ended September 30th, 2023, a decrease of $5.2 million, or 96%, compared to revenues of $5.4 million for the three months ended September 30, 2022. Revenues from license and R&D services are comprised primarily of revenues we recognized in connection with the Chiesi Agreements. As of March 1st, 2023, sponsorship of the extension studies was transferred to Chiesi, and Chiesi is now administering all open-label extension studies. Cost of goods sold was $4.9 million for the three months ended September 30th, 2023, a decrease of $2.2 million, or 31%, from costs of goods sold of $7.1 million for the three months ended September 30th, 2022. The decrease in cost of goods sold was primarily the result of the decrease in sales to Pfizer, partially offset by an increase in sales of Elfabrio to Chiesi and of Elelyso to Brazil. For the three months ended September 30th, 2023, our total research and development expenses were approximately $3.7 million comprised of approximately $1 million of subcontractor-related expenses, approximately $1.9 million of salary and related expenses, approximately $0.2 million of materials-related expenses, and approximately $0.6 million of other expenses. For the three months ended September 30th, 2022, our total research and development expenses were approximately $7.4 million comprised of approximately $4.9 million in subcontractor-related expenses, approximately $1.7 million of salary and related expenses, approximately $0.2 million of materials-related expenses, and approximately $0.6 million of other expenses. The total decrease in research and development expenses was $3.7 million, or 50%, compared to the three months ended September 30th, 2022. 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 MAA review of Elfabrio by the applicable regulatory agencies. Selling, general and administrative expenses were $3.7 million for the three months ended September 30, 2023, an increase of $0.9 million, or 32%, compared to $2.8 million for the three months ended September 30th, 2022. The increase resulted primarily from an increase of approximately $0.6 million in salary and related expenses due to one-time cash bonuses and an increase in share-based compensation. Financial income, net was $0.2 million for the three months ended September 30, 2023, compared to financial expenses, net of $0.4 million for the three months ended September 30, 2022. The change resulted primarily from an increase of $0.3 million in interest income. In the three months ended September 30, 2023, we recorded income taxes of approximately $0.1 million which were primarily the result of the provision for current taxes in respect of Section 174 of the U.S. Tax Cuts and Jobs Act, which was enacted in December 2017. Cash, cash equivalents, and short-term bank deposits were approximately $41 million at September 30th, 2023. Net loss for the three months ended September 30th, 2023 was approximately $1.9 million, or $0.03 per share, basic, and $0.04 per share diluted, compared to a net loss of $3.6 million, or $0.07 per share, basic and diluted, for the same period in 2022.

Dror Bashan, President and CEO

Thank you, Eyal. In concluding this earnings call, I would like to note that we at Protalix are proud of our accomplishments. We have a proven platform technology with two approved therapeutics driving a rich and sustainable pipeline of assets. A world-class team, a strong balance sheet supporting our strategic plans, and a strategic vision to create long-term value for our stockholders. We look forward to updating you in the future on our progress. Before we start taking questions, I would like to note that we are praying for our friends and family during this challenging time, one that is filled with pain. I'm grateful for our entire Protalix team; their enduring commitment and resolve at this time, as we develop a portfolio for patients with unmet medical needs, is noteworthy. Now I would like to ask the operator to open the call for questions, please.

Operator, Operator

The first question comes from Boobalan Pachaiyappan with H.C. Wainwright.

Boobalan Pachaiyappan, Analyst

Hi, this is Boobalan. Sorry for the voice. I'm still recovering from a sore throat. So thanks for taking our questions. Firstly, with respect to revenue from selling goods, I see that the revenue dropped from $15 million in the second quarter to $10 million in the third quarter. Can you discuss the underlying factors for this drop in revenue and also what are your expectations for revenue in the fourth quarter?

Eyal Rubin, CFO

Thank you, Boobalan for the question. So in terms of the decrease, part of the decrease is decrease in sales to Pfizer and part of it is decrease in sales to Chiesi. As mentioned in the previous call, the sales to Chiesi are basically their inventory buildup. At this point, the sales to Chiesi are not indicative of the penetration of sales in the market. So obviously, as they build the inventory, there's going to be fluctuations in the next year and a half or even two years during the term that they're building the inventory and penetrating the market and building their presence in the markets. With respect to your second question about guidance on the revenue for the fourth quarter, we usually don't provide guidance for revenue, especially since the POs from Chiesi and from Brazilian Pfizer are dynamic, especially at this point, where Chiesi is the majority of the sales and they are building up their presence in the market. So I guess that it's going to take time until we'll be able to share forecasts and feel comfortable giving those forward-looking statements.

Boobalan Pachaiyappan, Analyst

Okay, fair enough. And then, congrats on winning the FDA, sorry, the regulatory approval in the UK and Switzerland. So I was wondering if you could provide or maybe at a high level discuss the Fabry disease market opportunity in the UK and Switzerland, and also which countries can we expect to approve Elfabrio in the upcoming quarters?

Dror Bashan, President and CEO

So actually, the drug was approved already in most of the, if I may say, western countries in Europe. So the United Kingdom is not part of the EU, but it's certainly an important market. Also in Switzerland it was approved, and the idea is indeed to move on to other markets outside the EU, including Japan, where Chiesi initiated the study in order to register the drug later on and other markets as well. As for the specific size of the Fabry market in the UK, I don't have it in front of me. And also this is Chiesi's role right now. So once we have more data or Chiesi releases more data, we will be able to share it with you. But certainly the UK is a very important market in Europe.

Boobalan Pachaiyappan, Analyst

Okay, thanks for the color. Let's switch gears and discuss your clinical programs, especially PRX-115, the ongoing Phase 1 study. So I'd like to get some additional color on some of the items that you're listed in the exclusion criteria. So I was looking at the clinicaltrials.gov website. And so some of the criteria, especially the exclusion criteria, say you're excluding patients with one or more Gaucher in the last year and those with subcutaneous tophi or those with advanced renal diseases, they're also excluded. So I'm trying to understand if the strategy is to target mild or moderate forms of gout without the renal complication, if I may? So you can clarify more on that.

Dror Bashan, President and CEO

Yes, thank you for your question. This is actually a Phase 1 study involving a single dose, marking the first time we are infusing it to participants. The participants are volunteers suffering from hyperuricemia. The primary aim is to ensure safety and then to assess whether we can reduce hyperuricemia to normal or acceptable levels before proceeding. We are measuring various factors to determine if we can safely move to multiple ascending doses later in 2024. Our focus is not on mild patients; this study is specifically for severe gout patients.

Boobalan Pachaiyappan, Analyst

Okay. Thank you for the color. One last question, if I may. So again, with respect to PRX-115. So I know you're collecting immunogenicity data and blood uric acid levels as well. So I'm curious, what do you expect to see in these two data, especially Phase 1 study? What are your expectations?

Dror Bashan, President and CEO

So again, we would like to see safety for sure. And then we will analyze from a PKPD point of view additional measurements to see if we have indications for a reduction, of course, of the hyperuricemia and other parameters in order, again, to see frequency of dosing and other signals that will enable us, if I may say, to take further steps or more calculated steps for the next study.

Boobalan Pachaiyappan, Analyst

Okay, thank you for taking all my questions.

Dror Bashan, President and CEO

Yes, and again, just to make sure, the intent at least is to enroll up to 56 subjects. So I think it's enough of a number to, or we hope it's enough of a number to get enough information to move on. I won't say minimize the risk, but with less risk, of course. Safety for sure, but more than that.

Operator, Operator

Next question comes from the line of John Vandermosten with Zacks.

John Vandermosten, Analyst

All right, thank you, Dror and Eyal. Good day to you. Beyond cost, how much of your expense structure is oriented towards the Elfabrio business?

Dror Bashan, President and CEO

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

John Vandermosten, Analyst

Oh, I'm sorry. Beyond cost, how much of your expense structure is oriented towards the Elfabrio business now?

Eyal Rubin, CFO

In terms of cost structure, other than manufacturing, which takes something like three to four months a year, and the production for three to four months a year is sufficient to supply and provide half of the patient population worldwide, we're not investing at present in Elfabrio.

John Vandermosten, Analyst

Okay. And how do you see your capital structure changing now that you have two revenue generating products, and then also keeping in mind that there's the convertible bet on the balance sheet.

Eyal Rubin, CFO

That's a good question. We truly have two revenue-generating products out there. Since we are not doing anything in the equity capital markets, obviously, I guess gradually, slowly, but surely when revenues start to ramp up, the big players are going to join the party, and we're going to see that we have a stable stream of revenues and we are accumulating cash. So it's a different company. It's not a typical biotech company in the development stage. At present, we don't see this change. As we said, the company at this point is self-sustained. We don't see any need to raise money in the foreseeable future for ongoing operations. So I guess that's going to take time. Over time, I guess that the capital structure is going to change.

John Vandermosten, Analyst

Okay. And I think that are coming due next year in about a year. And then quarterly cash burn, can you give us some help on how to forecast that going forward? I noticed it was a little bit greater than net income for the quarter, and I just wanted to see if you could help us understand how that might flow through for the next several quarters.

Eyal Rubin, CFO

Yes, so I think that I responded to this one previously too by Boobalan. Since we are just in a phase of revenue ramp up and Chiesi is just starting to penetrate the market and build their presence, slowly but surely, I guess that that's going to fluctuate. We don't feel comfortable at this point sharing the forecasts for the next couple of quarters. Yes, I think it's very, very fluctuating. They can decide that they are pulling two batches, one batch, for even technical reasons delaying one. So I think at this point, it's going to be irresponsible to share forecasts for the short term. Long term, as I said in the next day, you're going to have to, that's going to be mostly an inventory buildup with a runway that will ramp up, I'm talking about sales obviously, will ramp over time.

John Vandermosten, Analyst

Okay, and then shifting to PRX-115 and assuming that topline comes out as expected or better in the middle of next year, what are the next steps there? Would that be Phase 2 or I guess I'm just wondering what we should expect to see from that development program.

Dror Bashan, President and CEO

So we intend to do multiple dosing following the single dose that we do now and then once we have, which is actually a Phase 2 and then we will continue from there.

John Vandermosten, Analyst

Okay, and just one last one on 119. What are the next steps for that program?

Dror Bashan, President and CEO

So we, thank you for that. So we will gather information in the near future, if I may say, from the different preclinical studies and other data that we have. And we'll have, if I may say, kind of a portfolio go-no-go meeting. And if indeed we decide to go ahead, we will share and continue to toxicology in Phase 1.

Operator, Operator

Thank you. This concludes today's question and answer session. I would now like to turn the floor over to Dror Bashan for closing comments.

Dror Bashan, President and CEO

So thank you everybody for your participation. I appreciate the time. We look forward to speaking with you on our next call for 2023 results. I hope for a more peaceful time for us here in Israel. Thank you all.

Operator, Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.