Protalix Biotherapeutics Inc (PLX) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Protalix BioTherapeutics First Quarter 2017 Financial Results and Corporate Update Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host, Mr. Yossi Maimon, CFO. Sir, you may begin.

Thank you, Brian, and thank you, everybody, for joining us today for the Protalix BioTherapeutics' first quarter 2017 earnings results and corporate update conference call. With me today is Moshe Manor, our President and CEO.

A press release announcing our results is available on our Web site. Please take a moment also to read the disclaimer about forward-looking statements in the press release, the earnings release, and this teleconference includes some forward-looking statements. These statements are subject to known and unknown risks and uncertainties that may cause actual future experience and results to differ materially from the statement made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the U.S. SEC, Form 10-Q we will be filing tonight, and Form 10-K we filed in connection with our annual report.

I will now turn the call to Mr. Moshe Manor.

Good morning and thank you for joining us. 2017, thus far, has been an exciting year with a lot of positive momentum. Coming from our pipeline product as well as increased revenues from sales of alfataliglicerase in Brazil. On today's call, we will first review our earnings results for the first three months of 2017 and then provide a brief corporate update.

I will now turn the call over to Yossi to review the company's financials.

Thanks, Moshe. So for the three months ended March 31, 2017, Protalix recorded a net loss of $8.3 million or $0.07 per share basic and diluted, excluding one-time non-cash net charge of approximately $50.9 million in connection with measurement of a derivative compared to a net loss from accounting from continued operation of $8.6 million or $0.09 per share basic and diluted for the same period in 2016.

The conversion feature for the company's 7.5% convertible note is accounted for as a derivative, which is separated from the debt component and is measured at fair value in each cutoff period. Given the significant increase in our share price and the note fair value, the derivative was increased against a non-cash charge to the P&L. Based on the recent shareholder approval for the ability to convert notes fully in stock, the derivative will be reversed in its entirety into the income statement and shareholders' equity next quarter.

Protalix recorded total revenues of $2.9 million for the three months ended March 31, 2017, compared to only $679,000 during the same period in 2016. The increase is attributed mainly to the increase in sales of drug products sold in Brazil totaling $1.2 million for this quarter and an increase of about 900,000 of drug substance sold to Pfizer.

Research and development expenses were $4.6 million compared to $6 million for the same period in 2016. SG&A were $2.5 million compared to $2 million incurred in the same period in 2016. As of March 31, 2017, we had $48 million of cash and cash equivalents. We projected our cash will fund operations into 2019.

I will now turn the call back to Moshe who will provide an update on our clinical programs and corporate. Moshe?

Thank you, Yossi. This quarter we were very happy to report positive data on our Phase 2 study of alidornase alfa for cystic fibrosis, additional preclinical data on our lead program for Fabry disease, and increased revenues from Brazil for our commercial (inaudible).

First, I would like to discuss our cystic fibrosis data. In accordance with the trial design, all patients in all the trial were tested to three time points during the study for percentage, predicted forced expiratory volume in one second, in other words FEV1, a key efficacy measure.

The first time point was at the time of enrollment when the patient was still under treatment with Pulmozyme. The second time was after a two-week washout period from Pulmozyme; we call this baseline. And the third time was at the end of the 28-day study after daily inhalation treatment of alidornase alfa.

We recently completed final analysis of the data demonstrated the mean absolute increase in FEV1 of 3.4 points from baseline. We also showed a mean absolute increase in FEV1 of 3.3 points, which we previously reported as 2.8 from last inhalation of Pulmozyme. A mean improvement of 3.4 points from base and 3.3 points from last Pulmozyme treatment are both clinically meaningful positive result.

As you may recall, interim results from the trial showed a higher mean absolute increase in FEV1 of 4.1 points from baseline. However, this should not be mistaken for a loss of efficacy or duration of response, but rather than direct result of smaller increase in FEV1 from baseline for the last few patients enrolled.

We had the opportunity to present the full results to the CF Foundation. And following their initial review of the result, they invited us to submit a letter of intent to its therapeutic development of our program. While this is not a guarantee for a grant, it speaks volume on the quality of the data derived from our Phase 2 study. We welcome the opportunity and intent to seek the foundation, guideline, and advice for the further development of alidornase alfa.

In addition we're currently in discussion with potential partners, medical advisory board, and regulatory consultants on our clinical strategies for alidornase alfa. We look forward reporting the full positive Phase 2 trial result in an oral presentation at the European Cystic Fibrosis Conference in June.

Moving on to our lead product, pegunigalsidase alfa or PRX-102 for Fabry disease, we are very happy to report that the FDA cleared our IND to evaluate once monthly dosing for Fabry patient. The current standard of care is biweekly dosing. This will mark the first clinical trial ever to evaluate once monthly dosing and is another step towards creating a unique alternative with less frequent infusions while enhancing quality of life of Fabry patients, a clear unmet need.

In addition a more convenient treatment option will also increase compliance and potentially provide better efficacy having complete drug coverage between infusions. Given pegunigalsidase alfa pharmacokinetics profile and significant superior circulatory half-life, we are so convinced that we will be able to demonstrate positive results with one monthly dosing. If successful, this will position Protalix as the leading company in Fabry arena with potentially two superior treatment alternative. We expect to begin the once monthly study of evaluating 2-milligram per kilogram of pegunigalsidase alfa in the third quarter of this year.

We also recently announced new preclinical results demonstrating a positive effect on small fiber neuropathy in Fabry disease model compared to Fabrazyme and Replagal, the currently marketed therapies for the disease. Fabry mice treated with pegunigalsidase alfa showed a 53% reduction in the number of IVA [1 spot], which is the market for information over the peripheral sensory nerve system. This result signaled there could be an elevation of damage to the peripheral sensory nerve; a very exciting finding. We will look to further explore in our ongoing and planned clinical trials.

Next, I want to discuss our commercial product alfataliglicerase for the treatment of Gaucher disease and the progress made to-date with our activities in the Brazilian market. On May 6, Fiocruz, with participation of senior Ministry of Health officials and Protalix management, held a conference called Change Perspectives in Gaucher in Rio de Janeiro, hosting over 60 leading Gaucher-treating physicians from across Brazil.

Key officials from the Ministry of Health, Brazilian Ministry of Health, stressed their commitment to the Gaucher community and announced their adoption of the CONITEC, which is the National Committee for Technology Incorporation, recommendation to treat all Gaucher patients aged four and older with alfataliglicerase, which is what we call the Protocol. At the Conference, CONITEC presented that the Protocol was approved during its 55th meeting. And after the Health Ministry's signature, the Protocol will be published in the Gazette. This is an important milestone in both ours and Brazilian Ministry of Health process of making our drug, the drug of choice in Brazil.

As we have previously reported, Fiocruz submitted a letter of intent to purchase approximately $24 million of drug product for 2017. On March 22, 2017, we received a formal purchase order of $24.3 million of drug product, formalizing such letter of intent. The first shipment is approximately $6 million is being prepared for shipping around June with additional two shipments planned for the second half of 2017.

To keep up with the expanding revenues, we have increased our manufacturing activity significantly in nearly full capacity. We expanded to cover the current demand and anticipated future increased order as we anticipate over the next 18 months. A majority of the patients with Gaucher disease in Brazil will be taking alfataliglicerase specifically following the recent CONITEC recommendation I mentioned earlier.

Before we open the call up for questions, I want to conclude by saying that we're very excited and enthusiastic for the months ahead. We remain highly focused on bringing differentiated treatment to patients in desperate need of better options and are making great strides towards this goal with our suite of pipeline products. Two of which have already demonstrated strong differentiated clinical data.

We have transitioned the company from a biosimilar platform to a biobetter platform namely product with superior clinical profile; a goal I set forth upon joining Protalix in late 2014. Expected revenues from Brazil will extend the company's cash runway and will help offset to a great extent of research and development expenses. For the remaining of the year our main focus will be pushing to keep enrolment on track for our Phase 3 Fabry trials initiating the once monthly dosing [drive] for PRX-102 and continuing discussion with potential partners for our earlier stage asset.

So, thank you all for joining the call, and I will now turn the call over to the operator to take any questions you may have.

(Operator Instructions) Our first question comes from the line of Peter Welford from Jefferies.

Got a couple. Firstly, just with regards to the financial statements and apologies if these have been [told], but just to understand your comments about the reversals, does that mean in the second quarter, we should anticipate the entire net, roughly $50 million charge, to essentially reverse in the second quarter, net out to zero in the full-year?

And then just to understand the revenues, did you say that Brazil was $1.2 million in the quarter or is the increase in Brazil $1.2 million? I guess I'm just trying to square the revenue number with the increase to Pfizer of $900,000. I'm just trying to understand if Brazil increased by $1.2 million or if it was actually that.

And then just with regards to taliglicerase, just to understand there, what's the potential revenues could be 18 months or so from now if all the majority of patients do switch to tali? Can you have some of your providing contact in terms of the opportunity, I guess, that there is in Brazil at the full body invasive assuming that those patients do switch?

And then finally, sorry, just on the cash burn, despite the sort of relatively low span, I think about $15 million was burnt in cash during the quarter. Can you just, I guess, square the difference of sort of 9 million between the EBITDA or if you like in the cash? Thank you.

Thanks, Peter. It's Yossi. So I'll try to tackle all of those. If I left something out, please remind me. So, the derivative, basically the derivative is balance sheet item. It will be reversed fully. Some of it will go through the P&L in a form of income, financial income, and some of it will go directly through the shareholder's equity which will, bottom line, will make it [trials] whole again as if nothing has happened.

So, we don't know exactly how much, but roughly speaking maybe half and half. But shareholder's equity will stay intact after approval. So, that's -- on June 30th, shareholder's equity will not be affected. Some of it will be directed in shareholder's equity, and some of it will go through the P&L first.

As for the revenues, we had no revenues in the first quarter in 2016 from Brazil. So $1.2 million is the total revenues from Brazil for the quarter. In Brazil, I think the way to think about it is maybe the total size of the market in Brazil, and I think that's currently we're looking at about total market of roughly $50 million. And we're between $45 million and $55 million; that depends on many elements. And as Moshe said, I think that we want to take a majority out of it. I think it's already to say, are we talking about 90% or a different number? But I think majority is what we're feeling comfortable saying at this point.

Lastly, I think I want -- is the cash, and we did see a net cash decrease of $15 million as opposed to our average burn of about $8 million to $9 million a quarter. And it's a good question, and thank you for that -- for the opportunity. (Inaudible) we did have some cash conversion of the convertible notes. Up to April 12th, we were bound by some limitations, and we had to convert most of these in cash. So I would say the difference is cash conversion. We had a total of $7.7 million of face value that have been converted. This quarter, we settled about $6.7 million in cash. So that's the difference that you see this quarter. I hope that answers your question, Peter?

That's great. Thank you.

Sure.

Yes, thank you.

(Operator Instructions) And I'm showing no further questions. And this does conclude today's program. Ladies and gentlemen, thank you -- we do have one question actually. Our next question comes from the line of [Carl Lohker], a private investor. Your line is now open.

I know that you're going to present the upcoming data at the CF Conference in June. But what, specifically about those last three patients, caused the slightly reduced efficacy that you mentioned as far as bringing the FEV1 down?

Well, Carl, I think that in CF patient, you always have couple of questions -- couple of patients that don't respond to the broader. So, this is more of kind of statistics, all these three patients that they were full respondents so that's why the numbers have changed.

But, all in all, I think what really important is that when we are talking about 3.4 absolute change improvement versus Pulmozyme 3.3 or 3.4 versus baseline, I think this is really a good number, very meaningful number. And if you look at all data that we're releasing in the CF recent data including all the CFTRs, this is really very meaningful. So, I think that's what we need to focus. At the end of the day, it's really clinically meaningful, and that's why it's very encouraging for us. And that's why we have these discussions with the CF Foundation, and we continue to discuss that going forward to see what will be the next step for us.

Okay, thank you very much. Yes, I know that recently there's been some misconceptions out there so I just want to see if we can clear that up.

And our next question comes from the line of Peter Welford from Jefferies.

Hi, yes, sorry. Just two follow-ups. Firstly, [I know] the financial one. On the deferred revenues, they're roughly $2 million. Is that revenue that we should expect to come through into the cash flow of the P&L during the course of this year or not? And then, just with regards to the Fabry Program in the once monthly, I guess, once every four weeks dosing, could you just outline, I guess, [both] in there the types of patients you're looking to switch? Are these going to be replica of patients? Or are these going to be both enzyme replacement therapy products? And what is the time line of the endpoints that you're looking for in that trial? Is it just stabilization? Or are you looking to actually show some sort of superiority one way or another versus the existing ERTs? Thank you.

So, about the cash flow, Peter, could you just repeat? You were asking about the Brazil (multiple speakers) --

Sorry, just the deferred revenue. Deferred revenue went to $1.9 million on the balance sheet at the end of the quarter. I'm just wondering what that relates to if you can?

Yes, that will go into the cash flow this year. So, yes, I'm sorry, yes. It will go (multiple speakers) accounting [theme], we will recognize revenues this year. As for the four weeks --

Yes, the four weeks, I think that's a very important move from outside, and the way that we look at that is that we have the 1 milligram every two weeks, which we are studying now. And as you remember, Peter, those [for] patients with really progressing or deteriorating. While in the 2-milligram every four weeks, monthly injection -- infusion, we believe that we will look at patient that really stabilize and both on Fabrazyme and Replagal, and we'll continue a follow-up of one year with the goal to maintain stability. So -- and for those patients, the better convenience and less infusion, this could be really very significant.

So, the upside will be if we can show superiority there as well in terms of efficacy. But we believe that stabilization, that's really something that we are shooting at. So, at the end of the day, we'll give the physician two-option treatment if those patients -- those that are deteriorating. They can go with the 1-milligram every two weeks, and those that relatively stabilize can go with once monthly. And on top of that, it will have the flexibility to change because at the end of the day it will be the same product just double up the quantities.

So, I think that's something that -- it's a unique proposition both to physician and definitely for patient. We know that patients are really excited about cutting by half the infusion and the time of infusion. So that's why we believe that will be a very significant advantage. And in the end of that, if you want to look at that, that is giving us two [source] on superiority. So two shots on goal, that's what we are aiming at. So, all of that is a very important strategic move for us and position us in a very different place in the Fabry world.

And I am showing no further questions. And this concludes our Q&A session. Ladies and gentlemen, thank you for participating today's conference. This conclude today's program and you may now disconnect. Everyone have a great day.