Pfenex, Inc. (NYSEMKT:PFNX) Q4 2017 Earnings Conference Call March 15, 2018 4:30 PM ET
Evert Schimmelpennink - CEO, President, Secretary & Director
Susan Knudson - CFO
Hubert Chen - Chief Medical Officer
Jason Butler - JMP Securities LLC
Andy Hsieh - William Blair & Company
Greetings, ladies and gentlemen, and welcome to the Pfenex Fourth Quarter and Full Year 2017 Results and Business Update Call. [Operator Instructions]. As a reminder, this conference is being recorded.
We'd like to remind you that some of the statements made during the call today are forward-looking statements, including statements with respect to our development and commercialization plans for the PF708, Px563L, RPA563, PF582, PF529 and our other product candidates; and the expected regulatory pathways for our product candidates; the expected timing and phases of our clinical trials; the expected timing of clinical trial results; the expected timing of our regulatory submissions; potential partnering opportunities for our product candidates; our ability to satisfy the filing requirements for the PF708 through the 505(b)(2) regulatory pathway; the potential to receive future payments under our Jazz collaboration agreement; potential milestones for our product candidates; potential growth opportunities and strategy; and our expectations with respect to the sufficiency of our cash and cash equivalents and cash generated from operation to meet our needs for at least the next 12 months and support our PF708 NDA submission. Actual results may -- actual results could differ materially from those contemplated by our forward-looking statements, and reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ materially.
Additional information will be set forth in our annual report on Form 10-K for the year ending in December 31, 2017, to be filed with the SEC. The forward-looking statements on this call are based on information available to us as of today, March 15, 2018, and we disclaim any obligation to update any forward-looking statements except as required by law.
Earlier today, Pfenex released financial results for the fourth quarter and full year ending 2017. Pfenex' earnings release and corporate presentation are currently available in the Investor Relations section of our website.
It is now my pleasure to introduce you to your host, Pfenex CEO, Mr. Eef Schimmelpennink. Eef, you may now begin.
Thank you, Cole, and good afternoon, everybody. Welcome to Pfenex' Fourth Quarter and Full Year 2017 Results and Business Update Conference Call. I'm Eef Schimmelpennink, President and CEO of Pfenex, and I'm joined by Susan Knudson, our Chief Financial Officer; and Hubert Chen, our Chief Scientific Officer. During today's call, I will discuss our progress in the quarter and for the year and will also be providing an overview on our strategy for future growth. Susan will discuss our fourth quarter and full year 2017 financial results, after which I will open up the call for Q&A.
I joined Pfenex last August because I saw a company with a unique and validated protein expression platform, a broad, differentiated portfolio and a very talented team, as well as a company that I believe has significant opportunities for future growth. I realize the company was in need of change to unlock its true potential, and from day 1, my team and I focused on defining our priorities and setting a new course. We ended the year with a clear and concise strategy that we believe leverages the strength of the Pfenex Expression Technology platform through development of our own assets in our pipeline while also working with strong partners. As part of it, we defined our key priorities and aligned our resources against them to drive success going forward. Combined with lean and targeted spending as well as laser focus on execution, we're committed to continue to drive our success.
Throughout 2017, we made considerable progress in advancing our lead product candidates as well as achieving substantial development milestones in our partner programs. PF708, our teriparatide therapeutic equivalent to Forteo, is a key focus for us. It is marketed by Eli Lilly for the treatment of osteoporosis patients with high risk of fracture. With 2017 global branded sales of $1.7 billion, it represents a significant commercial opportunity.
The Pfenex team continues to execute on critical activities in manufacturing, clinical and regulatory. Importantly, we completed the last patient -- last visit of our Phase III trial in mid-February 2018, and we anticipate announcing top line immunogenicity data results in the second quarter of 2018. We believe that the results from this study, if positive, along with the positive bioequivalence findings in healthy subjects from our Phase I study, should satisfy the clinical filing requirements for our PF708 through the 505(b)(2) regulatory pathway.
In parallel, we continue to work towards submission of the NDA for PF708 in the third quarter of 2018, which may position us to potentially launch commercially in the U.S. if approved by regulators as early as the third quarter of 2019. I am a strong believer in the value of leveraging key competencies different bodies may have. And to that extent, we continue to evaluate and drive for commercial partnership opportunities for PF708. In parallel, we are in initial stages of exploration to potentially bring the product to market ourselves. Importantly, we will always focus on the pathway that drives the most value for our stockholders.
Moving to our collaboration with Jazz Pharmaceuticals. We have continued to make good progress and believe it demonstrates how uniquely enabling our platform technology is. In collaboration with Jazz, Pfenex is developing both PF743, a recombinant crisantaspase; and PF745, a recombinant crisantaspase with half-life extension technology.
In December 2017, we announced an amendment to our agreement with Jazz, under which we were eligible to receive an additional $43.5 million in amendment fee and development achievement payments, increasing the total value of potential payments to an aggregate total of $224.5 million. We also continue to be eligible to receive tiered royalties on worldwide sales of any product resulting from the collaboration. Because of this amendment agreement, in December, we received $18.5 million payment, of which $13.5 million related to development achievements and another $5 million following signing of the amendment agreement.
In 2018, we will continue our work to support the potential achievement of near-term development milestones. Our U.S. government-funded anthrax vaccine development programs are another illustration of the versatility of Pfenex capabilities. Px563L and RPA563 are novel anthrax vaccine candidates being developed by Pfenex in response to the United States government's unmet demand for increased quantity, stability and dose-varying regimens of anthrax vaccine.
These programs are funded by the U.S. government under a $143.5 million advanced development contract with BARDA. In January of 2017, BARDA exercised additional phases of the development contract, allowing for the continuing development of both RPA563 and Px563L. In the second quarter of 2017, we completed a long-term follow-up of the Phase I study subjects, and the results showed no change to the interim safety or immunogenicity results. In November 2017, we had a meeting with the FDA in which the agency provided guidance for the proposed clinical development and licensure plans for post-exposure prophylaxis indications. Potential next milestones in 2018 are the triggering of analytical and nonclinical animal study options, leading to a potential Phase II study in 2019, all subject to continued funding by BARDA.
For our PF582, Lucentis; and PF529, Neulasta, biosimilar programs. We continue to believe that the most prudent path for the development is a collaboration with a strategic development partner. As that business development process continues, we continue to seek partners with whom we would advance those programs.
Pfenex is at a pivotal point in our development, and I look forward to continue building Pfenex into an industry success. We'll focus on leveraging our Pfenex Expression Technology to create value for our shareholders. I see opportunity for future growth at Pfenex, which focus on our key assets and expanding our portfolio as well as continuing our business and corporate development efforts, seeking new collaborations.
Now I would like to turn the call over to Susan to discuss our fourth quarter and full year 2017 financial results.
Thank you, Eef. We reported revenue of $17.9 million in the fourth quarter of 2017 compared to $5.5 million in the same period in 2016. The increase was due primarily to development achievements related to the Jazz collaboration. Total revenue decreased to $28.8 million for the year ended December 31, 2017, compared to $60.2 million in 2016. The year-over-year decrease in revenue was primarily due to the termination of the development and license agreement with Pfizer in the third quarter of 2016. Additionally, in 2016, we recognized $4.9 million of revenue attributable to amortization of a development and license fee. The decrease in revenue was partially offset by $21.5 million of revenue recognized in 2017 from Jazz for the development achievement and achievement of certain development milestones, development services and amortization of license fees.
Cost of revenue increased to $1.7 million in the fourth quarter of 2017 compared to $1.3 million in the same period in 2016. The change was due primarily to a net increase in costs for the company's proprietary novel vaccine program, Px563L, which is funded by BARDA. Cost of revenue decreased to $5.2 million in the year ended December 31, 2017, compared to $5.3 million in 2016. The change was primarily due to a net decrease in costs from the company's, again, proprietary vaccine program, Px563L, again, funded by BARDA.
Research and development expenses decreased to $7.2 million in the fourth quarter of 2017 compared to $10.7 million in the same period in 2016. This decrease was primarily due to the company's decision to pause development activities on our PF582, Lucentis; and PF529, Neulasta, biosimilar programs. Research and development expenses decreased to $31.9 million in the year ended December 31, 2017, compared to $32.4 million in 2016 due to the pause of our biosimilar programs with the decreasing -- with the decrease being partially offset by increased costs related to clinical trials for our lead program PF708 and research and development expenses for developing PF743, a recombinant crisantaspase; and PF745, a recombinant crisantaspase with half-life extension technology, related to the company's collaboration with Jazz.
Selling, general and administrative expenses decreased to $3.7 million in the fourth quarter of 2017 compared to $4.4 million in the same period in 2016. This decrease in costs was primarily due to the departure of the company's former CFO during the fourth quarter of 2017. In addition, in the fourth quarter of 2016, Pfenex incurred costs associated with the Audit Committee's investigation. Selling, general and administrative expenses increased to $17.7 million for the year ended December 31, 2017, compared to $17.3 million in 2016. This year-over-year increase was primarily due to costs incurred in connection with the separation of former officers.
Cash and cash equivalents as of December 31, 2017, was $57.7 million. Pfenex believes it has sufficient cash to meet the company's anticipated need for at least the next 12 months. The company also believes it has sufficient cash resources to fund all necessary activities leading up to and including the submission of a new drug application or NDA for PF708 to the FDA.
Now I'll turn the call over to Eef for closing remarks.
Thank you, Susan. I'm grateful for the efforts put forth by the team at Pfenex as we work diligently every day to build value for our stockholders. We look forward to updating you on our progress.
Operator, could you please open up the call for Q&A?
[Operator Instructions]. And our first question comes from Jason Butler of JMP Securities.
First one, on 708. Can you just talk a little bit about what your current manufacturing, supply and capacity plans are for launch? I mean, are you ramping up and prepared for launch? Do you have supply identified already, looking ahead to the NDA submission?
Thanks, Jason, for that question. And yes, we have that fully lined up. It's a -- we've not disclosed who we're working with, but it's a U.S.-based supply chain, and fully ready to ramp up for the commercial launch. So we're very confident that we can support that.
Okay, great. And then on the Jazz collaboration, are there milestones that you're able to discuss today that you can point to as being the next value inflection steps for the collaboration?
We're not -- for the agreement terms with Jazz, we're not able to disclose future milestones.
Okay. And then just last one on the anthrax vaccines. I know it's looking forward a fair bit here, but can you talk about what a Phase II program would look like for the anthrax vaccines?
Sure, Jason. I can handle that one. So Phase II clearly will expand on the Phase I results that we have generated so far. So we will be looking at the appropriate formulation, whether it's going to be adjuvanted or unadjuvanted, and of course, also the appropriate dose level for each of these formulations. Clearly, these are proposals that will need to be vetted with both the FDA and also with BARDA, so that will be part of the continuing conversation we have in 2018.
And our next question comes from Andy Hsieh of William Blair.
I have two questions. One is really from a disclosure perspective. I know the company has a history of disclosing data on earnings calls, so just maybe share with us your disclosure strategy in terms of the top line Phase III immunogenicity. Are you thinking about disclosing on the -- thinking about earnings calls or probably in the form of a press release? Second, and this question probably is for Susan, in terms of capital allocation, there's two more new compounds now in the pipeline, 743, 745. Just maybe paint a picture for us in terms of how much R&D is allocated to that versus 708 and other pipeline compounds.
Thank you, Andy. Actually, that first question, as we've spoken about and we've mirrored in our guidance, that the primary results from the Phase III trial immunogenicity data as well as the other secondary results will become available, as we expect, in the second quarter of 2018. We at this moment are not able to define how we're going to exactly announce that, but we will make sure that as appropriate, we will inform everybody on that.
And then, Andy, addressing your second question, so to -- for clarification, the PF743 and PF745 are actually -- we're developing in collaboration with Jazz. So those programs are funded through the collaboration. So with that said, I want to point out that our resources and focus are on PF708, our equivalent to Forteo, again, with the clinical trial reading out in second quarter, and also focused on that NDA filing in Q3 of this year.
[Operator Instructions]. And our next question comes from Charles Greenberg [ph], a Private Investor.
I heard a rumor, and I think I'm addressing it correctly, that the Merck pneumococcal vaccine may be ready for a Phase III. And I'd just like to find out if there's any information I can find about that.
I think as far as I know, what's publicly available is what Merck has published around that, that they are indeed in a Phase III trial. But that question should be better answered by Merck.
[Operator Instructions]. And I'm seeing no more questions in the queue, so this concludes our question-and-answer session. I would now like to turn the conference back over to Eef for any concluding remarks.
Thank you, everybody, for dialing in, and we look forward to continuing to update you on our progress. Thank you, Cole. You may now close the call.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.