Protalix BioTherapeutics, Inc. (DE)

Good morning, ladies and gentlemen, and welcome to the Protallix Biotherapeutics Fiscal Year 2023 Financial and Business Results Conference Call. As a reminder, this conference call is being recorded. I'll now turn the conference over to our host, Ms. Lauren Marrick of LifeSci Advisors, Investor Relations for Protallix. You may now begin.

Thank you, Rob, and welcome to the Protallix Biotherapeutics Fiscal Year 2023 Financial Results and Business Update Conference Call. With me today are Dror Boshan, President and CEO of Protallix, 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 Protallix website. Please take a moment to read the disclaimer about forward-looking statements in the press release. The earnings released in 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 Portalix's filings with the U.S. Securities and Exchange Commission. I will now turn the call over to Mr. Dror Bashan. Dror?

Thank you, Lorraine, and welcome everyone to our fiscal year 2023 financial results and business update course. I will begin by reviewing our accomplishments over the past year and recent progress. Following my remarks, Eyal will provide a more detailed review of our financial results. We will then open the line for questions. 2023 marked a significant year for Portalix as we received regulatory approvals for our second drug, Elfabrio, for the treatment of adult patients with Fabry disease. In May of 2023, both the FDA and the EMA approved Elfabrio for the treatment of adult patients with Fabry disease. Since then, El Fabrio has been granted additional regulatory approvals in other markets like UK, Switzerland, and most recently in Israel as well. Our commercial partner, Chiesi Global Royal Diseases, remains focused on the commercial launches which are underway in the United States, in the European Union, the UK, and additional markets where approvals are granted. We are confident that Chiesi will continue to position Elfabrio for success, and we look forward to continued growth of Elfabrio's franchise. Elfabrio is now the second approved drug expressed via our proprietary plant called based protein expression system Procelix, which further highlights the success of our unique platform. With these significant milestones behind us, and while we are supporting Chiesi's operations, we are continuing to focus on building the development of our pipeline of innovative assets for the treatment of genetic and non-genetic rare diseases. Our next clinical development candidate is PRX115, which is being developed for the potential treatment of severe gout. PRX115 is a recombinant pegylated uricase product candidate that is also produced using our Procelex platform. In March of 2023, we have initiated a phase one first in human clinical trial of PRX115 to evaluate its safety, pharmacokinetics, pharmacodynamics, and immunogenicity. This is a double-blind placebo-controlled single ascending dose study being conducted in New Zealand in approximately 56 patients with elevated uric acid levels. We are pleased to announce that the trial is now fully enrolled, and we expect to report preliminary results from this study in the second quarter of 2024. Our next pipeline candidate, also being expressed through Porcelix, is PRX119. PRX119 is a pegylated recombinant human DNase-1 candidate in developing for the potential treatment of diseases associated with neutrophil extracellular traps, or NECs. Additional preclinicals are ongoing We will update you accordingly, of course. In addition to PRX115 and PRX119, we have multiple preclinical programs in progress, and we look forward to providing with the updates on these potential development candidates as they become more mature. On the corporate side, in 2023, we welcome Dr. Elliot Forster as chairman of our board of directors and a member of our nominating committee. Dr. Forster is succeeded Ze'ev Braunfeld who retired and we are grateful to Ze'ev for his dedication and leadership since the founding of Protonix. And we are grateful for Elliot's contributions thus far as we prepared for an exciting phase of development of the company. Finally, and before turning the call over to Eyal, I want to note that our strong balance sheet provides us with sufficient cash runway to support our operations And in addition, as Eyal will discuss, sales of a Fabrio to Chiesi increased after regulatory approvals of a Fabrio, while Chiesi builds its inventory to support a successful launch. We expect sales to Chiesi to gradually continue as they anticipate future approvals and launches in additional countries throughout the world. With that, it is now my pleasure to turn the call over to Eyal for a review of our financials And Eyal, please go ahead.

Thank you, Dror. And thank you everyone for joining today's call. Let me review our fiscal year 2023 financials. We recorded revenues from selling goods of 40.4 million for the year ended December 31st, 2023, an increase of 15.1 million or 60% compared to revenues of 25.3 million for the year ended December 31st, 2022. The increase resulted primarily from an increase of $14.1 million in sales of a Fabrio drug product to Chiesi, following the approvals by the FDA and the AMA of a Fabrio as Jor described, an increase of $0.1 million in sales to Pfizer and of $0.9 million in sales to Brazil. We recorded revenues from licensed and R&D services of $25.1 million for the year ended December 31, 2023, an increase of 2.8 million or 13% compared to the revenues of 22.3 million for the year ended December 31st, 2022. The increase resulted from the 20 million regulatory milestone payment from Chiesi in connection with the FDA approval of Fabrio, which was partially offset by a decrease of 17.2 million in revenues recognized in connection with the R&D performance obligation under the Chiesi agreement as the company has completed the phase three clinical program they're under. Revenues from license and R&D services represent primarily the revenues the company recognized for services provided under the KFD agreement. Cost of goods sold was 23 million for the year ended December 31st, 2023, an increase of 3.4 million or 17% compared to cost of goods sold of 19.6 million for the year ended December 31st, 2022. The increasing cost of goods sold was primarily the result of increasing sales of goods to Chiesi, Brazil, and Pfizer. Sales to Chiesi included certain drug substance costs, which had already been recognized as research and development expenses, as it was produced as part of the research and development activities. Accordingly, the related cost of goods sold does not include the cost of such drug substance. For the year ended December 31, 2023, the company total research and development expenses were approximately $17.1 million, comprised of approximately $6.3 million subcontractor-related expenses, approximately $7.8 million of salary-related expenses, approximately $0.6 million of material-related expenses, and approximately $2.4 million of other expenses. For the year ended December 31st, 2022, the company's total research and development expenses were approximately $29.3 million, comprised of approximately $17.8 million in subcontractor-related expenses, approximately $7.3 million of salary and related expenses, approximately $1.4 of material-related expenses, and approximately $2.8 million of other expenses. The decrease in research and development expenses was $12.2 million, or 42%, for the year end of December 31st, 2023, compared to the year end of December 31st, 2022. The decrease in resources and development expenses resulted primarily from an 11.5 million decrease in subcontractor-related expenses in connection with the PRX-102 clinical trial and a 0.8 million decrease in materials-related expenses. Selling general administrative expenses were $15 million for the year ended December 31, 2023, an increase of $3.3 million, or 28%, from $11.7 million for the year ended December 31, 2022. The increase resulted primarily from an increase of approximately $2.3 million in one-time cash bonuses, share-based compensation, and salary and related expenses, as well as an increase of $0.3 million in travel conferences and employee training expenses. Financial expenses net was 1.9 million for the end of December 31st, 2023, an increase of 0.5 million or 36% compared to financial expenses of 1.4 million for the end of December 31st, 2022. The increase was primarily due to a decrease of 0.9 million in income related to exchange rates, as well as an increase in interest expenses of 0.7 million which was partially offset by a gain recognized due to the conversion of portion of the 2024 notes of 0.4 million and 0.6 million increase in interest income. For the year ended December 31st, 2023, we recorded income taxes of approximately 0.3 million, a decrease of 0.2 million or 40% compared to tax expenses of 0.5 million for the year ended December 31st, 2022. The income taxes resulted primarily from the provision for current taxes and income mainly derived from U.S. taxable global intangible low tax income, GILTI, mainly in respect of Section 174 of the U.S. Tax Cuts and Jobs Act, effective in 2022, Section 174 of the TCGA requires all U.S. companies for tax purposes to capitalize and subsequently amortize R&D expenses that fall within the scope of Section 174 over five years for research activities conducted in the United States and over 15 years for research activities conducted outside of the United States, rather than deducting such costs in the current year. Minimum income taxes gives effect to a valuation allowance release equal to approximately $3.1 million. Cash and cash equivalents and short-term bank deposits were approximately $44.6 million at December 31st Net income for the year ended December 31st, 2023 was approximately $8.3 million or $0.12 per share basic and $0.09 per share diluted compared to a net loss of $14.9 million or $0.31 per share basic and diluted for the same period in 2022. I would like to turn the call back to you, George.

Thank you, Ayaan. I would like to conclude by expressing how proud we are of all that Portalix has accomplished throughout 2023. With two drugs expressed via our proven platform are now approved, we are continuing to build our expertise to develop a pipeline of assets to potentially transform the treatment of rare disease. I'm grateful for our world-class team who constantly demonstrate unwavering commitment to our mission. We look forward to updating you on our progress as we continue to drive innovation and create long-term value for the patients and stockholders. Now, I would like to ask the operator to open the call for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And once again, that is star 1.

Thank you. Thank you.

And our first question comes from the line of John Van Der Mossen with Zax. Please proceed with your questions.

Great. Thank you. And good afternoon to all of you. I thought I'd start off with a question about some of the PRX-102 studies that are going on. I noticed you had one in Japan and one in the United States for pediatric. Can you give us a timeline on how long those might take and what the next steps would be there to get approvals for Japan and for pediatric indication?

Thank you, John. Actually, these studies, they are conducted by Chiesi, and this is their responsibility. I don't have the timeline in front of me, of course, and this is for them actually to address that. But you can understand that they put a lot of attention and resources into expanding, if I may say, the franchise. This is clear.

Yeah, great. It sounds like they have a lot of opportunities out there. And also, you may not have gotten a lot of information from Tiazy on this, but when you look at your revenues and kind of expenditures for the year, How should we think of those balancing out, you know, in terms of free cash flow on the bottom line? Are they going to be pretty equal based on the view right now? Is that how you're planning going forward?

Thanks for the question, John. So I don't know what equal means, but as Joe mentioned, gradually we expect the sales obviously to grow. And in terms of, you know, the free cash flow, it depends how much money we're going to invest in the early stage and the later stage R&D. As I mentioned in previous calls, the sales to Chiesi are comprised of an inventory buildup as well as obviously commercial sales to the enrolled commercial patients. We expect that these sales are going to eventually grow and gradually will get to the place, as we indicated in our presentation, that we believe that Chiesi with a good job can take in the market.

Got it. And then looking at PUREX 115, you had mentioned that there's going to be results from that, it seems like, in the next couple weeks. Assuming those are positive, what are the next steps for that program? Is that a phase two, or might there be some other pursuit there?

So if indeed we continue to go forward, of course, we move into a phase two, yes.

Okay. Okay. And would that be before the end of this year that you would start that phase two?

This depends. I think it will be between the end to the first half of next year, yes.

The first half of next year. Okay, got it. And then last question on PRX-119. What are the next steps for that? Is that something you might put into the clinic this year?

Not yet. We are looking into the right indication to continue with. I think this will take further a bit more to decide.

Any other milestones on the R&D side that we should think about as we progress through 2024?

Once there will be something to update, we will update, of course. We are not exactly sitting on our hands. I think we will pretty much I would say even intensively in order to make sure that we can add the additional early stage assets. It is just, you know, we take our time and I hope we will cut, you know, the right move that will make sense.

Okay. All right. Thank you, Jor. Thank you, Yael. Appreciate your answer.

You're welcome. Once again, if you'd like to ask a question at this time, you may press star one. We'll pause a moment to poll for questions. Thank you. At this time, there are no additional questions. Gentlemen, would you like to make some further remarks?

So, this is Rose speaking. I just would like to thank everybody again for the time. And again, to thank our shareholders and our employees for supporting us and, you know, moving on with our commitment. And we will, of course, we'll update you accordingly on any further developments and we will meet in the next earning update. Thank you.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.