Protalix Biotherapeutics Inc (PLX) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Protalix BioTherapeutics Inc. Third Quarter 2017 Earnings and Corporate Update Conference Call. (Operator Instructions). As a reminder today's conference is being recorded.

I would now like to turn the call over to Mr. Yossi Maimon, Protalix's Chief Financial Officer. Sir, you may begin.

Thank you very much. Hello and good morning everyone and welcome to our third quarter 2017 earnings results and corporate update. With me today is Moshe Manor, our President and CEO. We also recently issued a press release announcing our results, which is available on our website as well.

I'd also like to draw your attention and take a moment to read the disclaimer about forward-looking statements in the press release, the earnings release and obviously this teleconference as well includes some forward-looking statements. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual future experience and results to differ materially from the statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the U.S. Securities and Exchange Commission.

The Form 10-Q will be filed for the third quarter of 2017. We will also include the detailed discussion of applicable risk factors under section 1A and also we would like to draw your attention to the Form 10-K, which we filed in connection with the year-end 2016.

With that, I will now turn you over to Mr. Moshe Manor.

Thank you, Yossi. Good morning and thank you for joining us. I'm delighted to be here today to discuss the progress that Protalix has achieved over the past few months. On today's call, I will provide the corporate update and then turn the call over to Yossi to review the company's financials.

This quarter we achieved the major milestone in signing a strategic partnership agreement with Chiesi Farmaceutici for ex-U.S territories for our lead clinical program, PRX-102, for the treatment of Fabry disease. The deal was instrumental for Protalix as it not only secured a strong a clinical and commercial partner with expertise in the open drug space in EU, but also strengthened significantly our financial position, thereby extending our cash runway into 2020.

As you may recall, under the term of the agreement, Protalix received an upfront payment from Chiesi of $25 million. Chiesi will also share in our development cost of PRX-102 up to $25 million, capped at $10 million per year. This covers a large portion of the clinical trial cost associated with PRX-102, thereby reducing our R&D spend.

Additionally, we are entitled to regulatory and commercial potential milestone payment of up to $320 million and tiered royalties ranging from 15% to 35%.

I want to say a few words on Chiesi as some of you may not be familiar with them. Chiesi is an international privately-held company with more than 80 years of experience in research and development, in marketing of innovative drugs. Their current focus is in respiratory therapeutics, specialist medicine and rare disease. And they have a commercial presence in virtually all market outside of the United States.

Moving on to PRX-110, our CF product, following on the heels of positive Phase 2 data, we submitted an application to the Cystic Fibrosis Foundation for a grant to support the clinical development of PRX-110. We expect the response from the CF Foundation in the first half of 2018.

In parallel, we'll continue to be in active discussion with potential partners for PRX-110 with the goal of maximizing the asset value similarly to what we did with PRX-102 and Chiesi. Speaking with potential partners, they have interest in the product not only because it has the potential to provide clinical benefit of the Pulmozyme but also because it will be developed and tested in combination with newly approved CF therapies including [Proactos] and [OS] potentiator.

Our earliest pipeline product PRX-106 is currently in Phase 2 study for the treatment of ulcerative colitis. This trial is nearing completion with the final patient needed currently in screening phase. We remain (inaudible) to announce top-line results from this study by early 2018.

Finally, I want to discuss our commercial product commercial product alfataliglicerase for the treatment of Gaucher disease. As you may know on March 22, we received a formal purchase order of $24.3 million of drug product. Shipment for approximately $3 million was completed this quarter for a total of $6.6 million for the nine months ended September 30, 2017.

According to the purchase order received by the company, additional shipments and schedule to be made during fourth quarter and into 2018. With our current cash plus the upfront payment from Chiesi, we are solidly funded into 2020, excluding any upside in revenue run rate above what we have seen this year from Brazil or any other potential partnership.

And with that, I will turn the call over to Yossi, who will review the financials.

Thanks, Moshe. So we'll dig in to the numbers. I think we'll start off with the -- with the first nine months of 2017. We reported a net loss of $32 million or $0.25 per share, basic and diluted, excluding the onetime non-cash charge of $38 million in connection with a re-measurement of a derivative compared to a net loss of $26.7 million or $0.27 per share, basic and diluted, for the same period in 2016.

As a reminder, the conversion feature for the company 7.5% convertible note was accounted for as the derivative until April 12, 2017. And following that, today, the derivative was reversed in its entirety to the shareholders equity section and was not re-measured again.

Protalix also recorded revenue of $16.8 million for the period compared to $7.1 million during the same period in 2016. The increase is attributed to primarily increase in sales of the drug we sold in Brazil and also to the drug substance sold to Pfizer.

Our R&D expenses were $19.8 million compared to $18.9 million for the same period in 2016. SG&A were $8.1 million compared to $6.2 million during the same period in 2016. The increase is mainly attributed to the increase of activities and revenues in Brazil.

As of September 30, 2017, we had $33.4 million in cash and cash equivalents. That was before the $25 million we just received from Chiesi after the balance sheet [date] obviously. During the period and through October, we had investors converted all of the $8.5 million of the company's 4.50% 2022 notes. At this point, the convertible notes composed of the 4.50% convertible notes that are due in September 18 with an aggregate space value of $5.9 million. And the senior secured notes of 7.50% convertible notes due on November 2021, aggregate principal amount of $61.9 million.

To conclude, I would also like to reiterate that with our cash, current cash plus the upfront from Chiesi which as I mentioned already received, we are funded into 2020 and that is excluding any milestone payment that we're entitled from Chiesi or any increase in revenue run rate or any potential partnerships in the future. I think that this puts us in a great position for success and I would like to end the call right now.

I will now turn the call back to the operator. We'll open up the floor to any questions. Operator?

Yes, sir. (Operator Instructions) And our first question will come from the line of Ram Selvaraju from H. C. Wainwright. You may begin.

Hi, guys, thanks very much for taking my questions and congratulations on all of your recent progress. I had a couple of things regarding the Chiesi collaboration. Firstly, can you confirm specifically which territories are covered by this collaboration and whether or not those territories include Israel?

Secondly, it would be helpful if you could provide us with some color on Chiesi's existing sales and marketing and commercial infrastructure with respect specifically to orphan disease. And what we think their commercial infrastructure might be like, that they could bring to bear in support of pegunigalsidase alfa if and when it is approved in their territories.

And thirdly, if you could just give us some more granularity on to what extent the clinical development cost for PRX-102 are likely to be covered by the funds that are allocated through those development costs through the Chiesi collaboration?

Thanks, Ram, it's Yossi. So, the first one is an easy one. It's a -- it's an ex-U.S. rights, basically all territories excluding the U.S. Israeli market is not a big market for Fabry disease, so it's unlike Gaucher in the past so maybe that was what you were [linking] to.

In terms of on the clinical cost that they will bear, so I think that's -- we kind of given some indications, so it's likely that's about 50% of the cost will be covered by them. That's a -- that's kind of an estimate of what their contributions will be for the Fabry program.

In terms of sales and marketing and infrastructure, now and in the future, so obviously this is a company that sells about $2 billion of product. And that they do have presence in virtually all of the territories that they have been granted exclusive rights in. So, that we actually made a point of it and also in the future they have committed to certain undisclosed parameters in order to make sure that they will deploy the required and necessary tools and expertise to gain meaningful market share in these territories.

And Ram, this is Moshe, just to provide some clarity on Chiesi, I mean they have decided to move into the rare disease a couple years ago and they already licensed one product and they bought a company in Denmark. So, they are building the rare disease unit and activities.

So by the time that we will be in the market, they will have an experience in couple of products in the rare disease which is very important, as we know that eventually this company will have capability to really to make the significant in-road and take share in the promising market in Europe and outside of Europe, except the U.S. which is still with us.

Okay, thank you, that's very helpful. Just two other things if I may, firstly, can you comment on what you expect to do with the remaining balance of the convertible notes that are due in 2018, do you expect to redeem them early or how should we be thinking about that going forward?

And then if you could give us some additional visibility on how you expect the contract situation with Brazil to evolve and not just going into the end of this year and next year but also longer term, beyond that if you anticipate the overall contract orders to stay around the same or increase or decrease a little bit, if you have any longer term visibility there?

Thanks, Ram. I think in terms of the note in 2018, I think it's a -- it's too early to say. We also don't -- we do have all the different options to address that at this point, thanks to the funds we have right now, it's not a challenge as it used to be in the past, and we have more than one way to address it.

As a reminder, we did refinance some of it in the past and all of it has basically has been converted to date. So, we still have time and we'll see in the future what our -- what's the best route for us.

In terms of Brazil, going forward, I think that it's kind of challenging to have exact time before the next shipments to go out. I think that's a -- in general, I think that's -- nothing has change on the macro level. The relationship we have with Brazil are still intact and actually we had visited in Brazil and met with numerous officials and we actually expect the Ministry of Health officials to visit our site in Israel later this month. But that doesn't translate immediately into our ability to have a clear visibility on the timing of future shipments beyond what we made other than we have -- we are now working on the next shipment already with the Ministry of Health already doing all the paperwork, et cetera. And that's still -- beyond that, it's hard to say exactly when, so I don't want to go into too much detail at this point.

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

I've got three questions please. And firstly just sticking with Brazil, did I hear correctly in your opening remarks that you now think the $24.3 million fund, that's likely to go into 2018 from the end of this year?

Secondly then, just on PRX-110, you said discussions with potential partners are ongoing much like Chiesi, should we take from that, that potentially that you'd consider retaining U.S. rights for that as you did for 102? I appreciate probably all options is still on the table at the moment, but is that [now] under consideration, the potential of you retaining some of 110 rights?

And then just finally on the P&L, the gross margin or I guess the cost of goods, it continues to take up. I appreciate it depends very much on the mix of the revenue line but what sort of level should we see as the -- as a reasonable run rate?

So yes, I think that's -- reality is that we are in November and I think that's the entire $24 million getting in 2017 is going to be challenging, although we are already working on the next shipment. So, I think in terms of timing we did indicate that this will obviously slip into 2018.

In terms of 110, I don't necessarily think that we should be thinking about just ex-U.S. deal. I think that everything is on the table. Globally, may even make more sense at this point, this is earlier program.

And lastly on the P&L, yes, you're right about the margins, I think that the more we'll see from Brazil, the higher margins will be as the margins are obviously substantially higher with these sales as opposed to the drug substance we sell to Pfizer. So, I think that we expect those to increase but I don't know to what extent.

That's great. And sorry just finally then, the [up] from Chiesi, do you have any visibility yet as to what period you're likely to be amortizing that revenue? Is that likely to be from now until filing or will it potentially be beyond the filing into the regulatory review?

Yes, so the $25 million upfront is something that we still need to look into. There's been some recent accounting announcement coming out exactly about that, so we will have to look into that and see exactly if we need to amortize it and over what period of time. So, we don't have an answer just yet.

And we have a follow-up question from the line of Ram Selvaraju from H. C. Wainwright. You may begin.

Yes, just a couple of points of clarification on 106 and 110, if I may. So on 110, could you clarify what your thinking is regarding the timing with which you would expect to start the next round of clinical development and what that is likely to look like?

I know in the past we discussed the fact that it could potentially resemble a registrational program and if you would start that set of clinical development for this product candidate without having a potential partner on board or if you are going to wait until after you had some kind of partnership whether that's ex-U.S. or global?

And then with respect to the oral antiTNF, could you give us a sense of once the results come out early next year, I believe, what the scenarios are for future development and with what timing you expect to potentially conduct that?

Okay, Ram. So in terms of timing for the 110, I think that we -- as we just mentioned and we just filed for the grant that we have been actually invited to do so by the CF Foundation, so we actually filed it just recently. I think that once we get a sense of how much of grant we're going to get and what comes along with it, I think it also makes sense for us to wait until we have a partner before we embark the next development stage.

I think that's -- from earlier discussions we already had, it sounds like these guys want to be heard and want to set the tone, if you will and make the decision on what kind of next step will be in terms of the protocol, the clinical development path, size of the study, et cetera. So, I think that it will be wise for us to wait at this point until these things will get some more clarity on this.

In terms of 106, I think that once we -- we have results, I think we already have people kind of engage and waiting to see the results. As we mentioned, we have final patients that are being screened. I think that we're very soon going to announce that we're going to end enrollment and which it's an eight-week study. It's an open label, so it's fairly quickly after that we could be out with some top-line data.

I think that definitely here, we'll have to wait for our partner. I think that there's so much -- if the results are positive, this could be huge and this could go many different ways, many different indications and obviously here we'll have to wait for our partner for all the reasons that I just mentioned. So, I think this carries a lot of upside, but we'll have to wait, and definitely in this instance, it will make sense to do so.

Yes, Ram, and this is Moshe, just to add to that, so it's not only the question of the product as Yossi mentioned, because it can go in different indication and each of the indication is a big indication. As you know it's a -- as well the proof of concept of the -- our oral platform, so that could be extended into a different or additional (technical difficulty) as well, so that's really a -- that's really in any case will be a partnership, [a] significant one, we want to move forward with it.

Great, thanks very much and I really applaud you for having so much more strategic flexibility and so much more going on now. It's really been quite intriguing to see the pipeline [expansion] that's been taking place, and I look forward to seeing you guys in Tel Aviv later this week.

Thanks, Ram. Same here.

Yes.

I'm showing no further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.