Protalix Biotherapeutics Inc (PLX) 2023 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Protalix BioTherapeutics Conference -- Second Quarter and 2023 Financial Business Results. As a reminder, this conference is being recorded. I will now turn the conference over to our host, Mr. Chuck Padala with LifeSci Advisors, Investor Relations for Protalix. Thank you. You may begin the conference.

Thank you, operator, and welcome to the Protalix BioTherapeutics Second 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 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 the Protalix filings with the U.S. Securities and Exchange Commission.

I will now turn the call over to Mr. Dror Bashan. Dror?

Thank you, Chuck, and welcome, everyone, to our second quarter 2023 financial results and business update. I will begin by reviewing our recent progress and accomplishments. And following my remarks, Eyal will provide a more detailed review of our financial results, and then we will open the line for questions.

I would like to start with the most impactful milestone we achieved this quarter. Together with our development and commercialization partner, Chiesi Global Rare Diseases, we are very much excited that both the European Commission and the U.S. FDA approved Elfabrio for the treatment of adult patients with Fabry disease.

Introducing an alternative treatment option for patients that has the potential to improve quality of life is a significant achievement for the patients and their families affected by the Fabry disease. Elfabrio is now the second approved drug from our proprietary protein expression system, ProCellEx, which further highlights the success of our unique platform.

The approval triggers a USD 20 million milestone payment that we have received from Chiesi in Q2. We are very grateful for the Protalix team as well as our partnership with Chiesi. Chiesi's continued dedication to this journey has been -- greatly contributed to these achievements.

As we discussed during our KOL event in June, Chiesi is poised to realize the full potential of Elfabrio with a global presence and significant expertise within the rare diseases space. They have ramped up commercial activities and have already launched in the U.S.

In addition, in preparation for launches in various countries, Chiesi has started building its inventory as reflected in our financials, on which Eyal will elaborate soon. Fabry disease represents a significant opportunity in a multibillion-dollar market that is in need of an alternative treatment option, and we and Chiesi are prepared to deliver.

As I just mentioned, Protalix hosted a KOL event in June in New York City. We would like to thank Dr. Ankit Mehta for sharing his perspective on how Elfabrio could address the unmet needs in Fabry disease patients. And we also thank Giacomo Chiesi for joining us and providing an overview of the Chiesi's in-depth -- and experience bringing rare disease drugs into the global markets.

During our event, we also discussed the future of Protalix and our focus in the rare disease space. We are committed to addressing high unmet needs for patients with limited therapeutic options. And we are well equipped with the clinical, regulatory and technical expertise to move Protalix forward into the next phase of growth.

To that end, I will now provide an update on our very early stage programs. First, PRX-115, which is a novel PEGylated uricase in development for the treatment of severe gout. Enrollment in Phase I first-in-human clinical trial of PRX-115 is continuing.

And as a reminder, the trial is a double-blind, placebo-controlled, single ascending dose study designed to evaluate the safety, pharmacokinetics, pharmacodynamics and immunogenicity of PRX-115 in up to 56 patients. The study is being conducted in New Zealand.

To date, 16 patients have been dosed in this trial, and we are looking forward to continuing enrollment and dosing of patients. We expect that enrollment will be completed by the end of this year, early next year and to have final results by second quarter of 2024.

We also continue to make progress on PRX-119, a PEGylated recombinant human DNase I protein designed to elongate DNase's half-life in circulation for treatment of NETs-related diseases. We have conducted preclinical studies to demonstrate the feasibility of PRX-119. We look forward to providing updates on this program and others as we look to build and strengthen our growing pipeline.

Finally, our strong balance sheet provides us with sufficient cash runway to maintain current operations without the need for near-term capital infusion.

I will now turn to Eyal to review our financials. Eyal, please?

Thank you, Dror, and thank you, everyone, for joining today's call. Let me review our second quarter 2023 financials. We recorded revenues from selling goods of $15.1 million during the 3 months ended June 30, 2023, an increase of $11.7 million or 344% compared to revenues of $3.4 million for the 3 months ended June 30, 2022. The increase, as Dror mentioned, resulted primarily from an increase of $11.7 million in sales to Chiesi following the approval by the FDA and the EMA of Elfabrio.

We recorded revenues from license and R&D services of $20 million for the 3 months ended June 30, 2023, an increase of $14.6 million or 270% compared to revenues of $5.4 million for the 3 months ended June 30, 2022. The increase resulted from the $20 million regulatory milestone payment from Chiesi in connection with the FDA approval of Elfabrio. Revenues from license and R&D services are comprised primarily of revenues we recognized in connection with the Chiesi agreement.

Cost of goods sold was $6.1 million for the 3 months ended June 30, 2023, an increase of $2 million or 49% from cost of goods sold of $4.1 million for the 3 months ended June 30, 2022. The increase in cost of goods sold was primarily the result of increase in sales of Elfabrio drug substance to Chiesi and royalties payable to the Israel Innovation Authority in connection with the Chiesi agreements.

For the 3 months ended June 30, 2023, the company's total research and development expenses were approximately $4.5 million, comprised of approximately $1.7 million in subcontractor-related expenses, approximately $2 million of salary and related expenses, approximately $0.1 million of materials-related expenses and approximately $0.7 million of other expenses.

For the 3 months ended June 30, 2022, our total research and development expenses were approximately $7.6 million, comprised of approximately $4.4 million in subcontractor-related expenses, approximately $1.6 million of salary and related expenses, approximately $0.7 million of material-based related expenses and approximately $0.9 million of other expenses.

The total decrease in research and development expenses was $3.1 million or 41% for the 3 months ended June 30, 2023, compared to the 3 months ended June 30, 2022. The decrease in research and development expenses primarily resulted from the completion of our Fabry clinical program and the regulatory process related to the BLA and the MAA review of Elfabrio by the applicable regulatory agencies.

Selling, general and administrative expenses were $4 million for the 3 months ended June 30, 2023, an increase of $1.4 million or 54% compared to $2.6 million for the 3 months ended June 30, 2022. The increase resulted primarily from an increase of approximately $1.2 million in salary-related expenses due to a onetime cash bonus.

Financial expenses net were $0.8 million for the 3 months ended June 30, 2023, compared to financial income net of $0.2 million for the 3 months ended June 30, 2022. The increase resulted primarily from an increase of $0.6 million in costs related to exchange rates as well as an increase in our convertible notes related expenses of $0.3 million net of a gain recognized due to the conversion of a portion of the 2024 notes of $0.4 million.

In the 3 months ended June 30, 2023, we recorded income taxes of approximately $0.3 million, which were primarily the result of the provision for the current taxes in respect of Section 174 of the U.S. Tax Cuts Jobs Act of 2017, which went into effect on January 1, 2022. Section 174 eliminated the option to immediately deduct research and development expenses in the year incurred and requires us to capitalize and amortize these expenditures over 15 years for out of the U.S.-based research and development. In addition, during the 3 months ended June 30, 2023, we released a valuation allowance related to deferred tax assets of the U.S. jurisdiction that resulted in a net benefit to tax expenses of $3.1 million.

Cash and cash equivalents were approximately $48.2 million at June 30, 2023. Net income for the 3 months ended June 30, 2023, was approximately $19.3 million or $0.29 per share basic and $0.21 per share diluted compared to a net loss of $5.3 million or $0.11 per share basic and diluted for the same period in 2022.

I will now turn the call back to you, Dror.

Thank you, Eyal. So thank you, everyone, for joining our today's call. On a personal note, I would like to express my gratitude to the entire Protalix team, whose tireless efforts have resulted in this exciting time in the company's evolution.

Although our path towards regulatory approval has certainly had its challenges, given the recent regulatory approvals in the EU and the U.S., we have made significant progress in turning around the company. We are now focused on strengthening our pipeline and R&D capabilities. I'm proud of the Protalix achievements so far this year, and I'm confident we will continue to drive the company forward for the benefit of the patients and their families.

Now I'll turn the call back to the operator and open the line for your questions, please.

(Operator Instructions) Our first question is from Boobalan Pachaiyappan with H.C. Wainwright.

So firstly, with respect to Elfabrio. So we understand Chiesi is responsible for launch activities. But maybe from Protalix's end, what additional updates would you like to provide to the shareholder regarding launch preparation? And maybe when can we hear the drug will be launched or about the pricing information and all that, when can we hear?

So thank you for that. I think as you know, Chiesi is responsible for the commercial -- for the 100% of the commercial activities. Chiesi is also a private company. So once we will be able to share more information, we'll share more information.

Right now, the product was just approved. It was launched in the U.S. It is being approved country by country in Europe. This is public information, of course. And as Eyal mentioned and I believe also briefly mentioned, we are building stock, and I hope that this will continue into a good penetration into the market.

So once we will have more data, we will share it through our financials in the different quarters, of course. But I can assure you that we are pleased with Chiesi, very pleased with Chiesi. We think they are very good and committed partner. And we are positive they are doing their best and top priority to bring these products to the patients.

Okay. Fair enough. With respect to your ongoing PRX-115 gout study, so given you're enrolling patients -- hello, can you hear me?

Yes.

Okay. All right. Sorry, there was a glitch. So with respect to your ongoing PRX-115 gout study, given you're enrolling patients who have elevated uric acid levels, I'm just curious whether you're planning to measure UA level at the end of treatment, but also what would be an acceptable reduction in uric acid levels to demonstrate the clinical meaningfulness of 115?

So I suggest we have to finish the recruitment and to analyze the data. This is why we have -- we plan at least to have up to 56 subjects in this clinical study. The protocol that we are using, I think it's public. It's -- we have all the details of the trials over there.

So clearly, it's about reducing the uric -- the levels. But overall, I suggest we wait and see the final results in order for us to evaluate what we have in hand and how to proceed for the next stage.

Okay. Good. And then maybe one final question from me. So with respect to NET programs, so I'm trying to understand your clinical strategy here because there are multiple NET diseases, NET-related diseases, including rheumatoid arthritis, lupus, [psoriasis] and so on.

So I'm trying to understand, is the key here to demonstrate proof of concept in one particular indication and maybe partner with established players for the clinical development or branch out your -- the value of this drug? Any color on your clinical strategy?

So we have mentioned, I believe, in late June on our investor event that we have, if I may say, refined our pathway forward and our strategy going forward. And we will focus into the genetic and nongenetic rare disease space. This is going forward. We believe we have many years of experience, knowledge, many years of scars and also 2 outstanding successes bringing products to the market, going through all the developmental and regulatory hurdles and getting to the finish line. And this is where we believe we can add value.

This is despite the fact ProCellEx, our system, is agnostic. So this is the intent. Now right now, we are -- we will -- we planned this, and we hope we will succeed, of course, to put our hands and to bring in and strengthen our pipeline with additional programs within the rare disease space.

With regard to a commercial platform or a commercial partner, right now, we don't have the means, and we are still small. And we have to be -- to stay modest. So we will clearly develop the products until a certain stage, and then we will consider to join forces with a partner.

Five to 10 years down the road, it's a different ball game. Hopefully, we will do well, and then we can consider maybe to have a phase -- this is part of, if I may say, a vision, but not the 2, 3 years plan right now.

Our next question is from John Vandermosten with Zacks.

So let me start out with a question on any potential future studies for Elfabrio. I think it had been mentioned that there might be a pediatric study and potentially some others. Would Chiesi be completely responsible for those? Or would Protalix get involved as well? And also, do you know if there are any of these trials -- future trials, especially for pediatrics, being considered right now?

So again, under the agreement with Chiesi, our responsibility is to -- actually to supply the drug product to Chiesi. The rest is Chiesi's responsibility, including the medical plan and of course, the whole commercialization efforts.

As part of it, they do plan a pretty deep long-term medical plan with additional studies. As you mentioned, pediatric study, I think by the FDA requirement, it is written, and it's public as well, pregnant women study, et cetera. So I suggest we wait and we will -- once it will be initiated, it will be fully available, I mean, from a data point of view.

And also you can approach Chiesi and ask them for more information. But overall, I believe that within the next 6 to 12 months, we will be in the -- not we, Chiesi will be executing a very deep long-term medical plan. Since Protalix developed the product, there are some key senior employees that are consulted with Chiesi or Chiesi is consulting with them, but this is their responsibility.

Great. Yes. Also, I want to understand, I guess, how revenues will flow through from the product. There's 2 components there, well actually 3. The -- I mean, the milestone, there's the product revenues, and then there's the royalty revenues.

And you recognized, I think, $11 million so far in product revenues. Should we expect a continued trend like that on the product revenue side as we progress through the year? And then will they build up inventory and then work it down? I mean, what is your sense of how those revenues will flow for the rest of this year and into 2024?

So John, Eyal. Let me try to elaborate. So first, we have -- so John, I'll try to elaborate. First, it's not that we have a product, royalties and milestones. We have only 2 type of revenue stream from Elfabrio. The first one is obviously the royalty in both the U.S. and outside the U.S., which ranges 15% to 35% outside the U.S. and 15% to 40% of the list price, royalties for sales conducted in the U.S.

On top of it, we have milestones, regulatory and commercial milestones, obviously. In terms of what we've recorded this quarter and what we anticipate to record in the following quarters, obviously, as Chiesi are getting prepared for launch in the various countries, both in the U.S., which the product was launched and out of the U.S., obviously, they are building up their inventory. And those are the sales that we recorded.

The way that it works, we basically sell them the drug product based on the lowest royalty tier at least at present until we pick up and go to the next level, meaning 15% of the list price. And that's the revenue basically that we recorded. I want to be even more conservative than this since the agreement which is public, they state that we're getting the royalties from the NET sales. Obviously, we have a reserve for sRNA and discount in case that they are applied to the price.

In terms of projections for the next year, as a small company, we don't really provide projections. But I think that the trend at least in the next quarter is going to continue as Chiesi are building up and ramping up their inventory. Again in general over the next 2, 3 years until revenues are going to be stable and growing means that the changes in inventory are going to be at least for us totally transparent.

I guess that most of the revenues we're going to see is going to be changes in inventory and Chiesi's inventory build. Two, 3 years from now, I guess that, that will be a different story. But the trend is definitely that you're going to see an increase in revenue towards the end of this year. And obviously, in the beginning or the second quarter and towards the second half of next year as well, they are ramping up their operations.

Okay. Great, great. That's a good answer. And then royalty revenue sometimes take a while to flow through. Perhaps Chiesi would have sales in the third quarter of 2023, but the royalties won't be recognized until later. Can you give us a sense of the timing of how that might be and also the cash flows? I mean, I'm not sure if the revenue recognition and the cash flows will happen at the same time for this. Can you give -- help us understand how that flow will go for Elfabrio?

Sure. So as I described, the revenue is almost fully recognized the minute that we sell the inventory to Chiesi, the drug product to Chiesi. And it's also -- there's no timing difference between the revenue recognition and the cash flow.

According to the agreement, which is public, they have 45 days net to pay us, so there is no timing gap there. As I mentioned, since the sRNA and discount if applicable are, at this point, at least unknown. I guess that they -- as we move forward, we'll know better. And we're going to play with the reserves that we recorded. But most of the revenues are recorded in our books in a timely manner, and the same goes for the cash flows.

Okay. And then last question for me is on gross margin. And how might the gross margin in Elfabrio compare to Elelyso? Will they be in a similar range? Or should we expect a difference?

That's -- we're talking about a little different ball game. Obviously, I can't share with you the gross margin of the product, but the -- looking at the industry, I guess we can assume that you have biological drugs, you're talking about like anywhere between 85% to 90% gross margin on the product.

And I think that -- I can state that this is give or take the case with Elfabrio. Elelyso is a different story. Don't forget that we sold via royalties to Pfizer back then in return to getting a one-off big check that the Pfizer cut. That's the reason that we sell them at a very small, if any, margin on the sales. Brazil is a different story also. In Brazil, we do have margins. We don't complain. But again, we're not disclosing those margins at this point.

(Operator Instructions) Our next question is from [Dar Bases], private investor.

Just a point of clarification, if I may, on the revenue from Elfabrio. The $11 million, was that primarily manufacturing revenue? Or was there royalty revenue included in that?

Thank you for the question. So as I explained, I mean, I'll do it again. It's not manufacturing. We have only 2 streams of revenue on Elfabrio. The first one is royalties means drug that we sell to Chiesi, and we're getting royalties at a percent of the list price. And the second one, obviously, is milestones, both commercial and regulatory.

When we recorded the revenue, obviously, there's the finished products that were sold to Chiesi. They will turn around, obviously, and sell it to the market. But at this point, as I mentioned, I guess that, that's going to be the case in the next 2 years or so while they are building their inventory.

So we're going to actually record sales of drug product to Chiesi. That's going to be the revenue we're going to be recording. In the future, once the inventory change is going to be minimal, then the real royalties calculation and reconciliation is going to start taking place.

(Operator Instructions) There are no more questions at this time. I would like to turn the conference back over to management for closing comments.

So this is Dror, and I'd like to thank everybody for their time. And again, we are very happy with the results and the evolvement of the company. Happy that we have Elfabrio available both -- in both continents for the benefit of the patients and their families, and looking forward to speaking with you next time. Thank you very much.

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