Protalix BioTherapeutics, Inc. (PLX) Q4 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Protalix Full Year 2018 Financial Results and Corporate Update. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Yossi Maimon, Chief Financial Officer. You may begin.

Thank you. Hello. Good morning, everybody and welcome to the Protalix BioTherapeutics full year 2018 earnings results and corporate update conference call. With me today is Moshe Manor, our President and CEO. A PR announcing the results is available on our 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 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 US Securities and Exchange Commission. The 10-K which we will file for the fiscal year of 2018 includes a detailed discussion of applicable risks under Item 1a, Risk Factors. With that, I will now turn the call over to Mr. Moshe Manor.

Thank you, Yossi and good morning and thank you for joining us today to review the company’s full year 2018 results and recent highlights. During the call this morning, I will provide a corporate update and then Yossi will review the company's financial before opening up the lines for questions. This year, the company remains highly focused on the clinical and commercial development of our lead program, Pegunigalsidase alfa, or PRX-102 for the treatment of Fabry disease. This focus has led to a favorable and very productive meeting with the FDA which was held recently to discuss the potential path for an accelerated approval. The FDA confirmed that the PRX-102 can rely on surrogate endpoint as part of the basis for potential accelerated BLA approval. Following our initial discussion with the agency, we are cautiously optimistic about this path forward. The FDA urged us to file for an additional Type C meeting where we've planned to present the data generated thus far from our PRX-102 clinical trial programs, mainly the kidney biopsy and eGFR data and further discuss the content of potential accelerated approval before our Phase 3 clinical trial fully readout. We plan to meet with the FDA again by the end of the second quarter of 2019. As far as where we stand today with regard to our Phase 3 clinical development program for PRX-102, the BRIDGE trial completed enrolment at the end of last year, the BALANCE trial is now over 80% enrolled and the BRIGHT trial is over 90% enrolled. And based on the FDA discussion during our recent meeting, we believe that the potential filing for accelerated approval might be based on the data company has already generated in its clinical trials of PRX-102. Over the past year, the FDA has granted us fast track designation for PRX-102 based on our unique product characteristics and the unmet need in treating Fabry patients. We also were very happy to present on last October preliminary data from the BRIDGE study, showing a significant improvement in kidney function once patients were treated from Replagal to PRX-102. In addition, baseline characteristics for the BALANCE trial highlighting PRX-102 is less inhibited by preexisting neutralizing antibodies than Fabrazyme. In addition, substantially all patients treated in the BRIGHT trial have remained under once-monthly 2 milligram per kilogram dosing regimen, in particular, it should be noted that followed the 13 patients that have completed the 12-month study have opted together with their treating physician’s advice, to continue with once-monthly dosing in an extension study rather than switching back to the 1milligram per kilogram every two weeks regimen. All of the above support our belief that PRX-102 will be the best choice for Fabry patients. Also this year, we expanded our partnership with Chiesi Farmaceutici to include exclusive US rights for commercialization of PRX-102in addition to European rights for which an agreement was signed in 2017. The expansion of the agreement resulted in upfront payment to Protalix of $25 million, up to $20 million in development costs and up to $760 million in regulatory and commercial milestone payment along with tiered royalties ranging from 15% to 40%. Chiesi has been great a partner for Protalix and this influx of cash has to strengthen our balance sheet, which Yossi will discuss. Next, I will discuss our other clinical asset, PRX-110 and PRX-106 which have both completed the early phases of development. Starting with PRX-110 for the treatment of cystic fibrosis, while the early data generated to date is very encouraging, we’ve learned from discussing with potential partner for us to truly recognize the value of this asset, additional supportive clinical data is needed. Given our focus on PRX-102 and focused cash resources, we are re-prioritizing PRX-110 in 2019. Moving to OPRX-106 for the treatment of ulcerative colitis, we had significant news flow on our Phase II program for this asset in 2018. We announced positive results from our Phase II clinical trial, showing a robust clinical response a culture responsible and remission, and improvement in mucosal healing. We are still evaluating whether to take this asset forward on our own or to collaborate with one of the potential partner we are currently in discussions with. We hope to be able to come to a decision in the second half of 2019 and we’ll update the market accordingly. Overall, 2018 was a clinical execution year with 2019 being a potentially transformative one for Protalix. The next 12 months will set out to be a very busy period for us, including the following potential catalyst. Meet with the FDA in a Type C meeting next quarter and have more clarity on the potential accelerated approval test, finalize enrollment in both the BRIGHT and BALANCE studies, report interim data from our BRIGHT study, report final data from the BRIDGE study and move PRX-106 into the next phase of development internally or via collaboration. I will now turn the call back to Yossi who will provide a financial overview.

Thank you, Moshe. So first, I want to start with -- during the preparation of 2018 annual report, we reevaluated that our revenue recognition policy and determined we need to recognize certain revenue generated under the company's license agreement with Chiesi that were previously not recognized. The company now recognized revenues equal to $2.2 million, $2.8 million and $11.7 million over the first, second and third quarter of 2018 respectively. As such, the restatement decreased the company's loss for each of the periods of 2018. Moving into the full year ended December 31, 2019, Protalix reported a net loss of $26.5 million or $0.18 per share, basic and diluted compared to a net loss of $45.4 million or $0.35 per share basic and diluted excluding the re-measurement of the derivative for 2017. Protalix recorded total revenues of $34.2 million during the year ended December 31, 2018, which comprised of $9 million from selling of goods and $25.2 million from license revenues compared to $19.2 million from selling goods and $1.8 million from license revenues for the same period of 2017. Research and development expenses were $33.3 million for 2018 compared to $28.8 million for 2017, mainly due to the increase in activities across all the Phase III Fabry trials. Selling, general and administrative expenses were down to $10.9 million for ‘18 compared to $11.5 million for the same period in ‘17. As of December 31, 2018, we had $37.8 million of cash and cash equivalents, while our cash consumption in Q4 of ‘18 was $4 million. We cautiously estimate that our current cash position will take us into mid-2020. Depending on how that discussion with the FDA will continue, this cash position could potentially take us through filing for accelerated approval and even through approval, which could trigger a significant milestone payment from Chiesi. With that, I will now turn the call back to the operator who will open up the call for questions from the audience. Operator?

[Operator Instructions] And our first question comes from Ram Selvaraju with H.C. Wainwright.

Thank you very much for taking my questions. I had a couple of general ones. Firstly, I was wondering, Yossi, if you could specify or spell out for us in more granularity exactly the nature of these revenue restatements and if this is revenue that can principally be tied to Brazil or if it's a combination of Brazil and other things? And if you could maybe give us a better understanding of whether we should look at the principles underlying those restatements as potentially driving revenue trends going forward. And then the second question is relating to the pursuit of accelerated approval for PRX-102. Just wanted clarification on a couple of points. Firstly, are you or Chiesi going to be pursuing the next round of discussions with the FDA, particularly with respect to the preparation for and conduction of the Type C meeting? And then secondly, can you give us a sense of, if PRX-102 were to be considered submissible for accelerated approval, what might your post approval commitments be? Thank you.

Okay, Ram. I will start and if Moshe will have anything to add, he will add. So in terms of revenue recognition, it has been a hot topic recently with the new accounting pronouncement. The revenue that we have started to recognize in ’18 are only tied to and in connection with the revenues that we have received from the Chiesi licensing agreements. To date, we had received over $69 million in total from Chiesi, including the upfront payments of $50 million and R&D reimbursement of approximately $20 million. So in total, about $70 million. In the beginning, our approach was not to recognize any of the revenues, but the new accounting pronouncement that came into life early this year, early next – I’m sorry 2018 basically, we reevaluated and we think that we need to start recognizing some of these revenues. And as you saw in 2018, we recognized $25 million out of about -- $25 million about of the $70 million. So, these are not cash related or not product related, those are totally separated. In terms of product revenue, we recorded $9 million of revenues in 2018, which include $3.7 million from product sales in Brazil and $5.3 million of products sold to Pfizer. In connection with the accelerated approval, the next meeting with the FDA was they actually urged us at the end of the meeting that we just held recently to apply for another Type C meeting. In that meeting, we’re going to go through the actual data that we believe should go into the accelerated filing – potential accelerated filing approval. We have gone – conceptually, we have gone through this data and with the agency, but now we want to move together with them into the actual data, the underlying data, cutoffs, et cetera that we want to include in such potential filing approval. In terms of, if we are successful and we are granted accelerated approval, we, as I said, we are due for significant milestone approval from Chiesi from our US license agreement.

And Ram, just to add to that – to your question, this is Moshe. And in such case, if accelerated approval is granted, actually, the BALANCE study will be our confirmatory study. So we don't need any additional studies so for full approval.

And then just one other clarification, I believe you mentioned in the press release that you don't intend to conduct any further development of 110 at this time, but can you perhaps clarify for us, since you indicated that you have had some discussions with potential licensees about this molecule, what specifically they indicated they would want or need to see before potentially they would view this molecule as licensable? Thank you.

Yes. So I think that in general, I would say that all parties that we have engaged were looking into the data and found it interesting, but I think that it came out very clearly from all participants, that a placebo controlled study or some controlled study is something that will be required in order to move into a meaningful licensing agreement. So obviously, we're not prioritizing Fabry and then 106 and it could change very quickly, it depends on how the accelerated approval path with the FDA will continue, because that could cascade a lot of potential milestones and payments, et cetera that could change the picture very quickly, but we have to be conservative and at this point say that we're de-prioritizing PRX-110, but this will change as things will evolve later this year.

And then just one very quick item regarding the convertible debt twitches due November 2021, if 102 is ruled eligible for accelerated approval, what do you intend to do regarding this debt. Should we be thinking about your potentially refinancing it, extending the maturity dates, maybe just give us some sense of what you're thinking strategically.

Yes. So, we have almost 3 years, over 2.5 years until then, I'd just like to remind that there's a strike price for converting these, which is at $0.85. So it's too early to say what we're going to do with it, whether we’re going to repay some of it or a portion of it, whether they're going to be converted, I think a lot of it also depends on how the stock price will react, et cetera. So I think it's way too early to say. We know the noteholders very well, so I don't think we're going to be surprised at the 11th hour, we're going to be addressing this issue if and when it's going to be an issue, but I think we have a long way before we even need to address this.

Thank you. Ladies and gentlemen, that does conclude our conference call and you may all disconnect. Everyone, have a great day.