Protalix BioTherapeutics, Inc.
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Operator:]

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 turn the conference over to Yossi Maimon, CFO. Sir, you may begin.

[Yossi Maimon:]

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 website. Please take a moment also to read disclaimer about forward-looking statements in the press release, the earnings release and 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 filing tonight and Form 10-K we filed in connection with our annual report. I will now turn the call to Mr. Moshe Manor.

[Moshe Manor:]

Good morning and thank you for joining us. 2017 thus far has been an exciting year with a lot of quality of their momentum. Coming from our [indiscernible] 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.

[Yossi Maimon:]

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 onetime 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 period given the significant increase in our share price and 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 '16. The increase is attributed mainly to the increase in sales of drug products sold in Brazil totalling 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 '16. SG&A were 2.5 million compared to 2 million incurred in the same period in '16. 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?

[Moshe Manor:]

Thank you, Yossi. This quarter we were very happy to report positive data on our Phase 2 study of pegunigalsidase alfa [indiscernible] additional preclinical data on our lead program for fabry disease and increased revenues from Brazil for our commercial. First I would like to discuss our [indiscernible] data. In accordance with the trial design, all patients in all the trial were tested the three points during the study for percentage predicted for expiratory volume in one second, in other FEV1, a key efficacy measure. The first time point was at the time of enrolment 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 remain absolute increase in FEV1 of 3.4 points from baseline, we also showed an 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 point, 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 involved. We had opportunity to present the full results to the CA Foundation [ph] and following their initial review of the result they invited to submit a letter of intent to its therapeutic development of program while this is not a guarantee of 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 advise for the further development of alidornase alfa. In addition we're currently in discussion with potential partners, medical advisory board and regulatory consultant on our clinical strategies for alidornase alfa. We look forward reporting the full positive Phase 2 result in an oral presentation at the European CF Conference in June. Moving on to our lead product, pegunigalsidase alfa or PRX-102 for fabry disease. We're very happy to report that the FDA cleared our IND to evaluate one monthly dosing for fabry patient. The current standard of care is biweekly dosing. This remarked a first clinical trial ever to evaluate once monthly dosing and is another step towards creating a unique alternative with less frequent infusion 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 coverage between infusions. Given pegunigalsidase alfa pharmacokinetics profile and significance superior third quarter [indiscernible] 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 county [indiscernible] therapies for the disease. Fabrazyme with pegunigalsidase alfa [ph] showed a 53% reduction in the number of IVA1 [ph] spot which is the market for information over the [indiscernible] system. This result signal there could be an evaluation of damage to the peripheral sensory nerve. A very exciting finding, we will look to further explore in our ongoing and planned clinical device. 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, [indiscernible] with participation of senior ministry affairs officials and Protalix management had a conference call, changed perspective in Gaucher in Rio De Janeiro hosting almost 60 leading Gaucher treating physicians from across Brazil. Key officials from the ministry affairs, Brazilian ministry affairs trust their commitment to the Gaucher community and announced their [indiscernible] which is the National Committee for Technological and Cooperation recommendation to treat all Gaucher patients age four and older with Alfataliglicerase which is what we call the protocol. At the Conference CONITEC presented that the protocol was a full 55th meeting and after the health ministry signature the protocol will be published in the gazette. This is an important milestone in both ours and Brazilian ministry affairs, forces 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 treatment 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 is Gaucher disease in Brazil we 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 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 products [ph] two of which have already demonstrated strong differentiated clinical data. We have transitioned the company from a biosimilar platform to a bio-better 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 on way of help offset to a great extend our 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 [indiscernible] trials initiating the once monthly dosing trial for PLX-102 and continuing discussion with potential partner for our earlier stage asset. But 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:]

[Operator Instructions]. Our first question comes from the line of Peter Welford from Jefferies. Sir, your line is now open.

[Peter Welford:]

Got a couple, firstly just with regards to the financial statement and apology if these are been dealt. But just to understand your comment about the reversal, does that mean in the second quarter we should anticipate the entire net roughly 50 million charge to essentially reverse in the second quarter, a net out to zero in the full year and just to understand the revenues, did you say that Brazil was 1.2 in the quarter or is the increase in Brazil 1.2. I guess I am just trying to square the revenue number with the increase of Pfizer of 900,000 and just trying to understand the Brazil increase by 1.2 if it was actually that. And then just with regards to taliglicerase just to understand what the potential revenues could be 18 months or so from now if all the majority of patients do switch to tali, can you perhaps put that in context in terms of the opportunity I guess there is Brazil at the full volume basis assuming that those patients do switch. And then finally sorry just on the cash burn, despite the sort of relatively spend 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 if you like in the cash? Thank you.

[Yossi Maimon:]

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 shareholders equity which will bottom-line will make it hold against if nothing has happened. So we don't exactly how much but roughly speaking maybe half and half, but shareholders' equity will stay intact after April 12, so that's on June 30 shareholders' equity will not be affected some of it will be in shareholders' 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 '16 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 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 part of it, I think it's too early 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 to is the cash we did see a net cash decrease of $50 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. We did have some cash conversion of the convertible notes up to April 12, 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.

[Operator:]

[Operator Instructions]. We do have one question actually. Our next question comes from the line of Carl Luker [ph], a Private Investor. Your line is now open.

[Unidentified Analyst:]

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.

[Moshe Manor:]

Well Carl I think that in CS [ph] patients there is always couple of patients that don't respond to the product. So this is more kind of statistics, so you know patients that they will respond so that's why the number is changed, but all-in-all I think what really is important is that when we're talking about 3.4 absolute change improvement versus pegunigalsidase [ph] 3.3, 3.4 versus base line I think this is really a good number, very meaningful number and if you look at old data will release in the CF data including all the CF out, this is really very meaningful. So I think that's what we need to focus and 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 this discussion with the CA Foundation and we continue to discuss that going forward to see what will be the next step for us.

[Unidentified Analyst:]

I know that recently there isn't some misconceptions out there and I just want to see if we can clear that up.

[Operator:]

And our next question comes from the line of Peter Welford from Jefferies. Your line is now open.

[Peter Welford:]

Sorry just two follow-ups, firstly on the financial one, on the deferred revenues, the roughly $2 million, is that revenue that we should expect to come through into the cash flow, the P&L during the course of this year or not? And then just with regards with the fabry program and I guess once every four weeks dosing, could you just outline I guess the type of patients you're looking to switch, are these going to be Replagal patients or are these going to be both enzyme replacement therapy products and what is the timeline of the end points that you're looking forward in that trial, did is it just stabilization or are you looking to actually show some sort of superiority one way or another versus [indiscernible]. Thank you.

[Yossi Maimon:]

So about the cash flow Peter, could you just repeat, you were asking about the Brazil revenues?

[Peter Welford:]

Sorry, just the deferred revenue, deferred revenue went to $1.9 million on the balance sheet at the end of the quarter, I wonder what that relates to?

[Yossi Maimon:]

Yes, that will go into the cash flow this year, so, yes I'm sorry yes it will go. The accounting thing, we will recognize revenues this year. As for the full weeks--

[Moshe Manor:]

Yes the full weeks, I think that's very important move from our side and the way that we look at that is that we have the 1 mg every two weeks which are studying now and as you remember Peter those patients which are really progressing or are deteriorating, while in the 2 mg every four weeks monthly injection infusion we believe that we will look at patients that are really stabilized and both on Fabrazyme and Replagal and will continue follow-up of one year and with the goal to maintain stability and so those patients the better convenience and less infusion this could be really a 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're shooting at, so at the end of the day we will give the physician two option treatment if those patient those that are deteriorating they can go with the 1 mg every weeks and those that are really relatively stabilized can go with once monthly and on top of that it will have the flexibility to change and - because at the end of the day it will be the same product just double of the quantities. So I think that's something its unique proposition both to physician and definitely for patients 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 the if you want to look at that that is giving us two shoots on superiority, two shoots on gold that's what we're aiming at. So all of that is very important strategic move for us and position us in a very different place in the fabry world.

[Operator:]

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