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spk01: Good morning, ladies and gentlemen, and welcome to the Protolix 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 Badala, with LifeSite Advisors, Investor Relations for Protolix. Thank you. You may begin the conference.
spk05: Thank you, Operator, and welcome to the Portalix Biotherapeutics Second Quarter 2023 Financial Results and Business Update Conference Call. With me today are Dror Bishan, President and CEO of Portalix, 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 Portalix 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 portalics filings with the U.S. Security and Exchange Commission.
spk06: I will now turn the call over to Mr. Dror Bashan. Dror?
spk03: 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 Royal Diseases, We are very much excited that both the European Commission and the US 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 the families affected by the Fabry disease. Elfabrio is now the second approved drug from our proprietary protein expression system, Procelex. which further highlights the success of our unique platform. The approval triggers a $20 million milestone payment that we have received from Chiesi in Q2. We are very grateful for the Portalix team, as well as our partnership with Chiesi. Chiesi's continued dedication to this journey has been greatly contributed to this achievement. As we discussed during our KOL event in June, Chiesi is poised to realize the full potential of El Fabrio 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 multi-billion dollar market that is in need of an alternative treatment option. And we and Chiesi are prepared to deliver. As I just mentioned, Fortalex hosted a KOL event in June in New York City. We would like to thank Dr. Ankit Mehta for sharing his perspective on how El Fabrio could address the unmet needs in Fabry disease patients. And we also thank Giacomo Chiesi for joining us and providing an overview of the TFCs in depth and experience bringing rare disease drugs into the global markets. During our event, we also discussed the future of Portalix 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 Portalix forward into the next phase of growth. To that end, I will now provide an update on our very early stage programs. First, PRX115, which is a novel pegylated uricase in development for the treatment of severe gout. Enrollment in phase one, first in human clinical trial of PRX115 is continuing. And as a reminder, the trial is a double-blind placebo-controlled single ascending dose study, designing to evaluate the safety pharmacokinetics pharmacodynamics and immunogenicity of PRX115 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 we'll find our results by second quarter of 2024. We also continue to make pros on PRX119, a pegylated recombinant human DNR1 protein designed to elongate DNA's half-life in circulation for treatments of NETS-related diseases. We have conducted proclinical studies to demonstrate the feasibility of PRX119. 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.
spk06: Eyal, please.
spk04: 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 three months ended June 30th, 2023, an increase of $11.7 million, or 344%, compared to revenues of $3.4 million for the three months ended June 30th, 2022. The increase, as I mentioned, resulted primarily from an increase of $11.7 million in sales to Chiesi, following the approval by the FDA and the EMA of Fabrio. We recorded revenues from licensed and R&D services of $20 million for the three months ended June 30th, 2023, an increase of $14.6 million, or 270%, compared to revenues of $5.4 million for the three months ended June 30th, 2022. The increase resulted from the $20 million regulatory milestone payment from KIEZ in connection with the FDA approval over February. Revenues from licensed and R&D services are comprised primarily of revenues recognized in connection with the KSA agreement. Cost of goods sold was $6.1 million for the three months ended June 30, 2023, an increase of $2 million or 49% from cost of goods sold of $4.1 million for the three months ended June 30, 2022. The increase in cost of goods sold was primarily the result of increasing sales of a fabric or drug substance to Chiesi and royalties payable to the Israel Innovation Authority in connection with the Chiesi agreement. For the three months ended June 30th, 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 three 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-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%, from the three months ended June 30, 2023, compared to the three months ended June 30, 2022. The decrease in research and development expenses primarily resulted from the completion of our Fabric Clinical Program and the regulatory process related to the BLA and the MA review of El Fabrio by the applicable regulatory agencies. Selling general administrative expenses were $4 million from the three months ended June 30, 2023, an increase of $1.4 million, or 54%, compared to $2.6 million from the three months ended June 30, 2022. The increase resulted primarily from an increase of approximately $1.2 million in salary-related expenses due to a one-time cash bonus. Financial expenses net were $0.8 million for the three months ended June 30th, 2023, compared to financial income net of $0.2 million for the three months ended June 30th, 2022. The increase resulted primarily from an increase of $0.6 million in cost-related 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 portion of the 2024 notes of $0.4 million. In the three months ended June 30th, 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 US Tax Cuts Jobs Act of 2017, which went into effect on January 1st, 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 all of the U.S.-based research and developments. In addition, during the three months ended June 30th, 2023, we released evaluation allowance related to deferred tax assets of the U.S. jurisdiction that resulted in net benefits to tax expenses of 3.1 million. Cash and cash equivalents were approximately 48.2 million at June 30th, 2023. Net income for the three months ended June 30, 2023 was approximately $19.3 million or $0.29 per share basic and $0.21 per share diluted compared to an end 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.
spk03: Thank you, Ayon. So thank you everyone for joining our today's call. On a personal note, I would like to express my gratitude to the entire Protonix 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, even the recent regulatory approvals in the EU and the US 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 Copacopalix 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.
spk01: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone has to indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Bubalan Pachia with HC Weed Rank. Please proceed.
spk09: Hi, thanks so much for taking our questions. Firstly, with respect to Elfabrio, so we understand KS is responsible for launch activities, but maybe from Protalix's end, what additional updates would you like to provide to your shareholders 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?
spk03: So thank you for that. I think, uh, as you know, private PSE is responsible for the commercial, uh, for the 100% of the commercial activities, uh, is also a private company. So, you know, once we will, uh, 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 is being approved country by country in Europe. This is public information, of course. And as Yael mentioned, and I 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 a very good and committed partner. And we are positive they are doing their best and top priority to bring these products to the patients.
spk09: Okay, kind of. With respect to your ongoing PRX115 gout study, given your embryonic patient... Hello, can you hear me?
spk06: Yes.
spk09: Okay. All right. Sorry, there was a glitch. So with respect to your ongoing PRX-115 gout study, given you are enrolling patients who have elevated uric acid levels, I'm just curious whether you're planning to measure if UA levels at the end of treatment and also what would be an acceptable reduction in uric acid levels to demonstrate the clinical meaningfulness of PRX-115?
spk03: So I suggest, you know, 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. We have all the details of the trials over there. So... You know, clearly it's about reducing 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.
spk09: Okay, great. 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 further clinical development or branch out the value of this drug Any color on your clinical strategy?
spk03: So, you know, 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 non-genetic rare disease space. This is going forward. We believe we have many years of experience, knowledge, you know, many years of scars and also two 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 Procellix, our system, is agnostic. So this is the intent. Now, right now, we plan at least, and we hope we will succeed, of course, to put our hands and to bring in and strengthen our pipeline with additional program 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 stay modest. So we will clearly develop the products until a certain stage and then we will consider to join forces with a partner. you know, 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 face. This is part of a, if I may say a vision, but not the two, three years plan right now.
spk07: Okay. All right. Thanks so much for your time. Thank you.
spk01: Our next question is from John Vandermoysen with Zax. Please proceed.
spk06: Thank you. And, uh, Hello, Dror. How are you guys doing? Good. How are you, John? I'm doing pretty good.
spk08: So let me start out with a question on any potential future studies for Afabrio. I think it had been mentioned that there might be a pediatric study and potentially some others. Would PAZ be completely responsible for those, or would Fratellis 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?
spk03: So again, under the agreement with Chiesi, our responsibility is to actually 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 in its public as well a pregnant woman study etc 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 here and ask them for more information but overall i believe that within The next six to 12 months, we will be in the, not we, TSE will be executing a very deep long-term medical plan. You know, since Protalex developed the product, there are some key senior employees that are consulted with TSE or TSE is consulting with them, but this is their responsibility.
spk08: Great. Yeah. Thank you for that. Also, I want to understand, I guess, how revenues will flow through from the product. You know, there's two components there. Watch the tree. You know, the milestone, there's the product revenues, and then there's the royalty revenues. And you recognize, 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 you know, will they build up inventory and then work it down? I mean, what is your sense of kind of how those revenues will flow for the rest of this year and 2024?
spk06: So, John, let me try to elaborate.
spk04: First, we have, yeah, of course. So, John, I'll try to elaborate. First, it's not that we have the product royalties and milestones. We have only two types of, you know, revenue stream from Fabrio. The first one is obviously the royalties. in both the U.S. and outside the U.S., which, you know, ranges 15% to 35% outside the U.S. and 15% to 40% of the lease 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, you know, kids are getting prepared for launch in the various countries, both in the U.S., which the product was launched, and out in 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 lease price, and that's the revenue, basically, that we recorded. In order to be even more conservative with this, since the agreement, which is public, states that we're getting the royalties from the net. Obviously, we have a reserve for SMA and discounts 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. I think that the trend, at least in the next quarter or is going to continue as Chiesi are building up and ramping up their inventory. I guess that, you know, in general, in the next two, three years, until revenues are going to be stable and growing means that the changes in inventory are going to be, you know, at least for us, totally transparent. I guess that most of the revenues that we're going to see is going to be changes in inventory and Chiesi's inventory building. two, three years from now, I guess that that's going to be a different story. But the trend is definitely that they're going to see an increase in revenue towards the end of this year. And obviously in the beginning or, you know, the second quarter and towards the second half of next year as well, they're ramping up their operations.
spk08: Okay, great, great. That's a good answer.
spk06: And then...
spk08: You know, loyalty revenues sometimes take a while to flow through. You know, perhaps a, you know, KSZ would have sales in the third quarter of 2023, but their loyalties 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 help us understand how that flow will go for El Fabriano?
spk04: 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, yeah, there's no timing difference between the revenue recognition and the cash flow. According to the agreements, which is public, they have 45 days net to pay us, so there's no timing gap there. As I mentioned, since the SRNA and discount, if applicable, are at this point at least unknown, I guess that 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.
spk08: Okay. And then last question for me is on gross margin. And, you know, how might the gross margin of El Fabio compared to El Aliso, will they be in a similar range, or should we expect a difference?
spk04: We're talking about a completely different ballgame. Obviously, I can't share with you the gross margin of the product, but looking at the industry, I guess you can assume biological drugs, we're talking about, like, you know, anywhere between 85 to 80%. 90% gross margin on the pump. I can state that this is, give or take, the case with Fabrizio Eliza. It's a different story. Don't forget that we sold the royalties to Pfizer back then in return to getting a one-off big check that Pfizer cut. That's the reason that we sell them at a very small, if any, margins 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.
spk06: Okay. Thank you, Ariel, and thank you, Gerard. Appreciate it. Thank you. Thank you, John. Thank you.
spk01: As a reminder, this is DAR1 on your telephone keypad if you would like to ask a question. Our next question is from Dar Bashes, private investor. Please proceed.
spk02: Good morning. Just a point of clarification, if I may, on the revenue from Alfabrio. The $11 million, was that primarily manufacturing revenue or was there royalty revenue included in that?
spk04: Thank you. Thank you for the question. So as I explained, and I'll do it again, it's not a manufacturing. We have only two streams of revenue on Alfabrio. The first one is royalties, means that we sell to Chiesi, and we're getting royalties at a percent off the lease price. And the second one, obviously, is milestones, both commercial and regulatory. When we recorded the revenues, obviously, those are 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's going to be the case in the next, you know, two years or so while they're building their inventory. So we're going to actually record sales of drug products to Kansas. That's going to be the revenue we're going to be recording. And, you know, 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.
spk01: Great.
spk02: Thank you for that clarification. Appreciate it.
spk06: Thank you.
spk01: As a reminder to Star 1 on your telephone keypad, if you would like to ask a question, we will just pause for a brief moment for any final questions.
spk07: There are no more questions at this time. I would like to turn the conference back over to management for closing comments.
spk06: So this is Dror, and I'd like to thank everybody for the time.
spk03: And again, we are very happy with the results and the involvement of the company. Happy that we have Infabria 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.
spk01: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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