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Q3 2019 Earnings Call
Nov 07, 2019, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, ladies and gentlemen, and welcome to the Pfenex third-quarter 2019 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 PF708, PF743, and PF745 CRM 197, and our other product candidates; the expected regulatory pathways for our product candidates and our ability to satisfy the filing requirements for specific regulatory pathways; the expected timing and phases in our collaboration partners' future clinical trials; the expected timing of our regulatory submissions; and any potential future regulatory approval and commercial launch; potential partnering opportunities for our product candidates; the potential to receive future payments under our agreements with Jazz, Alvogen, Merck, SII, Arcellx and our other collaboration partners; potential milestones for our product candidates; potential growth opportunities and strategy including market sizes; our opportunity to drive shareholder value; expectations with respect to regulatory developments and therapeutic equivalents; and our future expectations with respect to the sufficiency of our cash and cash equivalents. 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 look at our filings with the SEC for a discussion of the factors that could cause our results to differ materially. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended September 30, 2019, to be filed with the SEC. The forward-looking statements on this call are based on information available. Earlier today, Pfenex released financial results for their third-quarter 2019.

Pfenex's earnings release and corporate presentation are currently available in the investor relations section of our website. It is now my pleasure to introduce your host, Pfenix's president and CEO, Mr. Eef Schimmelpennink. Eef, you may begin now.

Evert Schimmelpennink -- President and Chief Executive Officer

Thank you Dannielle, and good morning, everyone. Welcome to Pfenex's third-quarter 2019 financial results and business update conference call. Joining me on today's call is Susan Knudson, our chief financial officer. During today's call I will focus on discussing the status of our lead programs and partnerships and how they have transformed Pfenex into a company with its first FDA-approved product.

I will also provide an overview of our strategy which continues to leverage our proprietary Pfenex expression technology platform in order to expand our development pipeline. I will then turn the call over to Susan to discuss our third-quarter 2019 financial results, after which we will open up the call for questions. Before I get into the updates for specific programs, I want to say how proud I am of the Pfenex team. As we have successfully executed our turnaround over the last two years, the team has consistently delivered on numerous R&D, clinical, regulatory and manufacturing milestones.

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Among status leading to our recent FDA approval, which I believe is a clear acknowledgement of the capabilities of our team and our expression technology. All of these activities have also brought us to a position where I believe that our commercial, clinical and early development-stage programs continue to provide us with a robust and exciting portfolio of opportunities to generate near and long-term shareholder value as we enter our next phase of growth. The main focus for our team over the past year has been around the advancement of our lead program, PF708, a therapeutic equivalent candidate to Forteo, which is approved and marketed by Eli Lilly and achieved $1.6 billion in global product sales in 2018. These efforts came to a fantastic conclusion just last month with the announcement of the FDA approval of our new drug application for PF708 with Forteo as the reference drug.

Like Forteo, the FDA approved PF708 product is indicated for the treatment of osteoporosis in certain patients at high risk of fracture. This approval was in part supported by our Phase 1 study by equivalence findings in healthy subjects and data from our successful Phase 3 study which compared the effect of PF708 and Forteo in 181 osteoporosis patients, including our endpoints such as anti-drug antibody incidents, bone mineral density, and bone turnover markers. In addition to obtaining FDA approval of PF708, Pfenex is also seeking FDA designation of PF708 as therapeutically equivalent, or A-rated, to Forteo which would permit PF708 to be automatically substituted for Forteo in many states. The TE rating is primarily based upon three distinct requirements: pharmaceutical equivalence; bioequivalence; and comparative use study data.

We believe the FDA now has the information it needs to evaluate PF708 for a therapeutic equivalence rating based on bioequivalence being demonstrated in the PF708-101 study; pharmaceutical equivalence being demonstrated by the PF-708 formulation being specifically designed to meet the requirements of same active ingredient, same strength concentration, same dosage form and same route of administration versus Forteo; and our successful completion of the PF708 comparative human factor study which enrolled 102 patients and caregivers and compared the use of the Forteo pen to our PF708 pen. We were very pleased with the results of the human factor study which we believe demonstrated that the user interface of the FDA-approved 708 product was not inferior to that of Forteo for each critical user task evaluated in the study, based on a pre-specified statistical analysis of critical patients and caregiver tasks. The report from the study was submitted to the FDA mid-October. We look forward to receiving the FDA's decision on a therapeutic equivalence rating and we expect our U.S.

commercial partner, Alvogen, to launch PF708 upon receiving the agency's decision. In the meantime, we continue to work with Alvogen on launch preparedness for PF708 in the U.S. In line with our agreement with Alvogen, we earned a $2.5 million milestone for the FDA approval of PF708 and we are eligible to receive another regulatory milestone of up to $20 million and a 50% gross profit split on U.S. sales if PF708 is A-rated.

Looking beyond the U.S., we have also engaged Alvogen to commercialize PF708 in the E.U. Certain countries in the Middle East and North Africa and the rest-of-world territories excluding mainland China, Hong Kong, Singapore and Malaysia and Thailand. The marketing authorization application for PF708 has been filed and accepted with the EMEA using the biosimilar pathway with Forteo as the reference product. We currently believe that PF708 could be approved in the EU as early as the second half of 2020, subject to granting of a monitoring authorization by the European Commission under the E.U.

centralized procedure and other factors. Leading our commercialization efforts in the E.U. will be Alvogen's European distribution partner, Theramex, a leading global specialty pharmaceutical company dedicated to women's health. We believe that Europe offers another significant market opportunity as Forteo achieved $289 million sales in the E.U.

in 2018. Under our agreement with Alvogen, in the E.U. we are eligible to receive a gross profit split of up to 60% on product sales. Also, outside the U.S.

and Europe we, along with our partner Alvogen, continue to advance regulatory and commercial progress. In the third quarter, Alvogen submitted a marketing authorization application to the Kingdom of Saudi Arabia's FDA and entered into exclusive commercialization agreements for PF708 with Pharmbio in South Korea and Gem Pharma in Canada. Under the terms of these agreements, Alvogen will be responsible for the local activities through Pharmbio and Gem Pharma. We believe these latest developments further demonstrate how we are leveraging Alvogen's global presence and experience to reach as many patients as possible.

With Alvogen we are also in active discussions for licensing deals in the remaining territories and will keep you updated on progress there. With all the activities and opportunities for PF708, we are very excited about the potential milestones and sales royalties that could have a positive impact on our business. Turning to our collaboration with Jazz Pharmaceuticals through which we are developing two products, PF743 or JZP458 as it is named in the Jazz portfolio, a recombinant Erwinia asparaginase, and PF745, JZP341, a long-acting Erwinia asparaginase. In September we announced earning an $11 million milestone from Jazz that is associated with the process development activities for PF745.

We received the payment for this milestone in October after the close of the third quarter. Similar to PF743, our main responsibility for PF745 is to develop a product and process that can be track transferred to a GNP facility and taken to the clinic. Under our agreement with Jazz, we are eligible to receive an aggregate total of $224.5 million in development and sales milestone fees, of which $177.5 million is still eligible to be received. Of this $177.5 million, $18.5 million are development milestones, mostly tied to PF745.

$34 million are regulatory milestones and $125 million are sales milestones. We are also eligible to receive tiered royalties on worldwide sales of any products resulting from the collaboration. For PF743, following their successful Phase 1 study outcome earlier this year, Jazz announced in their third-quarter earnings that they are working toward recruiting the first patient this quarter into their single-arm pivotal Phase 2-3 study, and anticipate completing full enrollment by fourth quarter of 2020. The study is expected to enroll 100 patients and allows for an interim analysis after completion of 50 patients.

Jazz also indicated that recently FDA granted fast-track designation for JZP458 for the treatment of acute lymphoblastic leukemia. We are pleased with the progress achieved and look forward to following Jazz's continued advancement of the program and are proud to be part of these programs that have the potential to bring significant benefit to these critically ill patients. Moving to our carrier protein, CRM197, which is the third potential revenue driver in our current pipeline, we have development and commercial partnerships with both Merck and Serum Institute of India, or SII, among other partners. Regarding Merck, we are eligible to receive annual fees, milestone payments and tiered royalty payments based on net sales for all products that they develop that use the CRM197 production strains licensed to them and produced by the Pfenex Expression Technology platform.

Currently, Merck is using our CRM197 in 15 Phase 3 studies for its V114, an investigational 15-valent conjugate vaccine for the prevention of pneumococcal disease and the first Phase 3 data from their comprehensive development program may become available this quarter. Serum Institute of India has developed a 10-valent pneumococcal conjugate vaccine, Pneumosil, which utilizes our CRM197 and initiated the process of World Health Organization prequalification for Pneumosil in Q1 of 2019 which could mean a Q1 2020 approval and launch by SII. If approved, we believe that there is potential to earn sales royalties as early as Q1 2020 through our work with SII's Pneumosil. The second product being developed by SII which also utilizes CRM197 is is subject to the Pfenex expression technology license is a thermostable pentavalent meningococcal conjugate vaccine that has entered into a Phase 3 study.

This product is also targeting markets in developing countries. Pfenex is eligible to receive a tiered royalty payment based upon net sales for both products pursuant to regulatory approval. Turning to our development evaluation and license agreement with Arcellx, we are providing access to the Phenex Expression Technology platform to advance Arcellx's proprietary sparX proteins that activate, silence and reprogram antigen receptor complex T-cell-based therapies. Under this agreement we are eligible to receive development funding in addition to development, regulatory and commercial milestones ranging from $2.6 million to $18 million for each product incorporating a sparX protein expressed using the Pfenex expression technology, as well as royalties on worldwide sales of any such products.

We have completed the development of sparX 1 and are working on sparX 2. Arcellx has indicated that it intends to begin clinical testing of its lead BCMA targeted therapy in multiple myeloma in the coming months. We look forward to keeping you updated on our Arcellx collaboration and other new developments that we have started. I strongly believe in the potential that our proprietary expression technology has in developing biopharmaceuticals.

To truly unlock this opportunity we put a clear strategy in place when I joined Phenex a little over two years ago. This strategy is one that we've been diligently delivering on and that centers around three pillars. The first one being focus and execute, the second one expand selectively, and the third evolve into biopharma. Until early this year, we were fully focused on our first pillar which targeted delivering on our core portfolio.

And I believe the status of our current pipeline is testimony to the success and value that we've been able to create. As our core programs matured, we were able to pivot our resources and shape our second strategic pillar that focused on selectively expanding our pipeline, with a combination of wholly owned products and new royalty-bearing partnerships for our products for which our platform is highly enabling. Our partnership with Arcellx is an example of this and we are evaluating other opportunities that match our strategy of partnering on programs for which we are uniquely enabling to our partners, and that are fully funded by them while potentially providing Pfenex with significant milestone and royalty revenue. We are also in early development with a new, wholly owned program, PF810, a recombinant peptide aiming at solving a significant current therapy challenge.

We're looking forward to sharing more details with you as we are progressing the program through its preclinical phase. More recently, we've also started to explore opportunities for novel drug protein therapies. Understanding that currently approved drugs target only a small subset of proteins linked to a disease suggests that there may be a large potential drug development opportunity still out there. For many of these targets, the industry's increasingly focused on smaller-size proteins and engineered scaffolds to achieve biological activity on them.

Interestingly, it is especially these type of modalities that Pfenex, over the more than 15 years that the Pfenex expression technology has been active, has shown to be capable of developing and we are experienced at showing proof of concept quickly. This is the basis of our third strategic pillar, and I believe this presents a great opportunity for Pfenex to potentially become a significant player in this new wave of biologics and can over time evolve Pfenex into an integrated biopharmaceutical company. It is important to mention that a big part of our success over the last several years stems from being very diligent in how we deploy our capital. We intend to continue to run our company in that way.

Looking at the portfolio in the near- to mid-term, we don't currently expect to significantly change our expense profile as we move toward initial inflection points. Alike with our strategy we have expanded our board of directors and scientific advisory board. In August we welcomed Dr. Lorianne Masuoka to the Pfenex board of directors.

We believe Lorianne's extensive experience with successfully expanding the development pipelines of several biotech companies makes her a valuable counselor to the Pfenex executive team. We also appointed Dr. Steven Kay to our scientific advisory board in September. As one of the world's top experts on the genetics and genomics of circadian rhythms, as well as more than 200 published papers to his name, he has received numerous awards and brought recognition.

We're honored to have Dr. Kay contribute and support our team through his position on the SAB. In conclusion, with our late-stage programs advancing over the past year, and the first FDA-approved program under our belt, we see tremendous opportunity to potentially further leverage our platform technology and build out our pipeline. As a result we are attracting the highest caliber of talent to Pfenex to support these activities, including at the executive level, in the R&D team, as well as to our scientific advisory board and board of directors.

Their understanding of the science behind the Pfenex platform and desire to join the team speaks volumes about this potential opportunity. I believe in the future of our business, as we complete the transformation of Pfenex from a development company to a potential commercial biopharma company, with the possibility to generate several streams of milestone and royalty-based revenues. With multiple important commercial, clinical and research milestones on the horizon, we believe the company is on an exciting path and are pleased to have the continued opportunity to share it with all of you. I will now turn the call over to Susan Knudson, our chief financial officer.

Susan Knudson -- Chief Financial Officer

Thank you, Eef. And now, I'd like to cover our financial highlights for the third quarter of 2019. Revenue increased by $11.6 million, or 327%, to $15.2 million in the 3-month period ended September 30, 2019, compared to $3.6 million in the same period in 2018. The increase in revenue was primarily due to an $11 million development milestone achieved related to PF745 under our collaboration agreement with Jazz.

Cost of revenue decreased by approximately $0.4 million or 23% to $1.1 million in the three-month period ended September 30, 2019 compared to $1.5 million in the same period in 2018. The decrease was primarily due to the reduced activity related to our barter program that we deprioritized in the first quarter of 2019. Research and development expenses decreased by approximately $2.1 million or 23% to $6.9 million in the 3-month period ended September 30, 2019 compared to $9 million in the same period in 2018. The decrease was primarily due to reduction of direct costs incurred specifically in support of the PF708 NDA filing that occurred in December of 2018.

Selling, general and administrative expenses increased by approximately $0.3 milion or 8% to $4.1 million in the three-month period ended September 30, 2019 compared to $3.8 million in the same period in 2018. The increases were primarily due to expenses for IP legal, consulting and the expansion of our business development efforts. Cash and cash equivalents as of September 30, 2019 were $32.7 million. I point out, this excludes $13.5 million from milestones earned under our agreements with Jazz and Alvogen of $11 million and $2.5 million respectively.

Pfenex believes that its existing cash and cash equivalents and cash inflow from operations will be sufficient to meet Pfenex's anticipated cash needs for at least the next 12 months. Now, I'll turn the call back over to Eef for closing remarks.

Evert Schimmelpennink -- President and Chief Executive Officer

Thank you, Susan. In closing, we are pleased with the consistent flow of positive news throughout 2019 and we believe there are many opportunities to drive near- and long-term growth for our business. This is truly an exciting time for Pfenex and our shareholders. Thanks again to the Pfenex team for their continued great work and to all of our investors for your continued support.

We look forward to seeing you at the various conferences upcoming this fall. Thank you for joining us. Have a great evening. This concludes our prepared remarks.

I would now like to ask the operator to open the call for questions.

Questions & Answers:


[Operator instructions] The first question comes from Jason Butler of JMP Securities. Please go ahead. I'm sorry, his line -- he's not in the queue now. We're going to go to the next question.

Brandon Folkes of Cantor Fitzgerald. Please go ahead.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Hi. Thanks for taking the question, and congratulations on all the progress in the quarter. Firstly maybe, can you talk around the news flow if any we would receive around the potential TE rating? Is this just something that you submit and then we will hear whether they grant it or not down the line? Have they provided any color on potential timing at all, and that they need to review the submission since you have submitted it? And is it possible if we do reach a decision, they could offer more information or anything else around it? I'll stop then and have follow-ups. Thank you.

Evert Schimmelpennink -- President and Chief Executive Officer

Thank you, Brandon. Great question, obviously a key one, and one that we're actively discussing with the FDA. As I've shared previously there is no set timeline for the FDA to review therapeutic equivalence. However, they are acutely aware of the importance of reviewing our data quickly.

And that's what we notice in the calls that we have with the FDA, that like I said, are very frequent. So what we expect is that as they continue with their review and we know that the data is currently under active review, they will start to reach back out to us with information. But concretely to your question, they've not given us a timeline yet. So to date we still look at the benchmarks that are out there and hope that we'll be on the lower end, and could see a potential outcome pretty quickly.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

And then maybe just staying on 708 can you provide some color on what you're seeing in the anabolic pens market in 2019? I think Radius reported yesterday and had some commentary. Just would like to get your insight. Thank you.

Evert Schimmelpennink -- President and Chief Executive Officer

Right. Now, what we see is obviously the market continuing to grow from a volume perspective, and I believe that that's like it was in previous quarters, a combination of on the one hand Radius taking a little bit of share from Jazz but actually not that much. But more in the mark of continuing to expand. And frankly, with our product coming to the market I expect that that will -- that that effect will be even more pronounced.

We know that the market is significantly underserved. And as you often see with a more cost-effective equivalent coming, becoming available, the market again continues to expand significantly. So, that's in the fact that we expect to see, we're pleased to see that the Forteo revenue continues to hold up. Pricing continues to hold up as well.

So we continue to see a great opportunity there. And then you know, we -- it's just pivoting to the competitive landscape beyond Lilly and Radius, listening to this morning's Teva call they clearly indicated that they do not expect their teriparatide product to become available to the market until at the earliest the second half of 2020. Given how that guidance has been, you're continuing to be pushed out. I think we're seeing an even better opportunity for us as not only potentially the first product to hit the market, but potentially also the only one for a significant amount of time.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

One more for me. Can you just elaborate a bit more on the deliverables of the tech transfer with the Jazz collaboration and earning that next $18 million milestone, and maybe just rolling for fun into that. So then did you say that the cash balance excludes the $11 million you earned during the quarter? Thank you.

Susan Knudson -- Chief Financial Officer

Yes, Brandon, specifically let's start with your cash question first. And our balance, our ending cash balance as of September 30, that $32.7 million, does exclude both the $11 million Jazz milestone that we earned and we did also announce that we received that cash in October, as well as the $2.5 million milestone we earned for approval of 708. And then further to your question in regards to the remaining milestones on 745, so we talk about, there's approximately $18 million of development milestone still related to PF745 that we are eligible to earn. We've talked about that that majority again is related to 745 and could potentially be nearer-term.

As it relates to activities, it's all still around the process development. And similar to 743, kind of the end or ultimate goal related to that process is a tech transfer.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Great. Thank you very much.


The next question comes from Jason Butler of JMP Securities. Please go ahead.

Jason Butler -- JMP Securities -- Analyst

Hi. Thanks for taking the questions. Can you hear me OK?

Evert Schimmelpennink -- President and Chief Executive Officer

We can.

Jason Butler -- JMP Securities -- Analyst

Great. So just wondering, in terms of the process to launch after you get the TE rating. Can you speak to Alvogen's preparations in terms of supply and distribution, and is there anything in terms of printing label or packaging that cannot be done until TE rating is determined? Or are you ready to go as soon as you get the rating?

Evert Schimmelpennink -- President and Chief Executive Officer

Great question, Jason, and starting with the last one, the TE rating does not impact labeling. So we have final labeling, obviously as part of our approval. As you know, final labeling actually, you receive that a little bit before the approval. So the commercial product that we currently have available is printed in final label and with that ready to go.

So from a commercial volley or commercial stock we have that again ready to go. Alvogen is, as we all know, driving the commercial discussions and you can imagine that those discussions are very active with the payers at this moment, given the status of our products. And for obvious reasons I prefer to leave it with that, at this moment.

Jason Butler -- JMP Securities -- Analyst

OK, great. And then just in terms of your -- how you see the -- your investment in proprietary product candidates in the future, you mentioned PF810 and you'll give additional details. But can you just speak, I guess, broadly in terms of how you think about NCs in terms of validated targets or novel targets, other bio-better strategies, just where do your priorities lie or how do you evaluate the investment opportunities in those different types of -- from those different types of perspectives?

Evert Schimmelpennink -- President and Chief Executive Officer

We really see the expansion of our portfolio as effectively two steps, where the first one -- and that's obviously the one that we started with earlier in the year -- is really focusing on finding programs and partnerships that leverage the platform in a somewhat de-risked way. So we feel that we have ICMC advantage or an abbreviated regulatory path, or a clinical pathway that is de-risked. And that's where programs like Arcellx, but especially also PF810, fit. So again, without giving too much detail at this moment, we feel that they are de-risked and abbreviated.

You're moving into the novel space. It's something that we do in a very mindful way, and in a very diligent fashion. Both on our own, as well as with partners, again. And to your question, this is where we really pick targets that are proven, clinical pathways that have been shown, so that we know very well what we need to target and what we need to hit.

So we are again seeing it as a next step, a next logical step, in how we're expanding Pfenex and we're definitely not jumping to a very novel -- not yet too proven area of clinical targets.

Jason Butler -- JMP Securities -- Analyst

Great. Thanks for taking the question, and congrats on the progress, especially with the approval of PF708.

Evert Schimmelpennink -- President and Chief Executive Officer


Susan Knudson -- Chief Financial Officer

Thank you.


[Operator instructions] The next question comes from Andy Hsieh of William Blair. Please go ahead.

Andy Hseih -- Walthausen and Company -- Analyst

Great. Congratulations on the quarter, and bravo to the team on really just continuing the execution on all fronts. So I have a question about physician decision tree, when recommending a therapy for osteoporosis. One is that are U.S.

physicians aware of the concerns raised by the EMA for TYMLOS, specifically one on cardiovascular signal and also data integrity issues? And I guess related to that, how much of that decision making is primarily a copay factor?

Evert Schimmelpennink -- President and Chief Executive Officer

Great question, and indeed just to give some color on -- I'll give some background. So TYMLOS got approved in the U.S. but got rejected in Europe, and that's what Andy is reflecting on because of the two reasons that he gave. So TYMLOS is not approved in Europe because of associated cardiovascular risk and data integrity issues.

Now, I think that doctors in the U.S. are looking at this product as being FDA-approved and therefore it's safe and effective in its use. But I agree with what you're probably going to, Andy, is that the uptake I think is mostly price-driven. We've seen obviously TYMLOS pricing significantly below Forteo, and I do believe that that's what driving uptake is.

Having said that, our primary focus is on where 80% or 90% of the revenue in the market still sits, and that sits with Forteo. So our commercial strategy is focused on Forteo and driving maximum value for patients and for shareholders through a very keen strategic or commercial strategy.

Andy Hseih -- Walthausen and Company -- Analyst

Thanks for that insight. So this is kind of a theoretical question, but -- so based on the human factor study it seems like there were several tests that PF708 actually numerically outperformed TYMLOS. I'm just wondering if that could be used to kind of educate a doctor about potential superiority in usage. Is that important? Happy to hear your view on that.

Evert Schimmelpennink -- President and Chief Executive Officer

Yes, it's an interesting point and clearly in the majority of the critical tasks we indeed saw that we were performing better than Forteo. How these studies are set up is that you're only testing for non-inferiority. So that there are no limits set to show superiority. So while clearly it's the case in some of the tests that we were significantly better than Forteo, I don't think it's something that we will be allowed to actively market on because that's not how the human factor study was set up.

However, you could imagine that potentially just through great patient networks they will start to recognize that it's potentially again a more preferred patent to use.

Andy Hseih -- Walthausen and Company -- Analyst

OK, fair enough. And so in terms of regulatory milestones with Jazz, because you mentioned about potential enrollment completion by the end of 2020 and also the fact that you have an interim analysis of 50 patients. On top of that you have the fast track designation by the FDA. So this might not be super far off.

So in terms of regulatory milestones, how should we think about it? Is it much like the development milestones where PF745 is the primary driver, or it's roughly divided? Just any additional color would be helpful.

Susan Knudson -- Chief Financial Officer

Sure, Andy. So as we talk about under the Jazz collaboration there's still $34 million in regulatory milestones eligible to be earned by Phenex. The only guidance that we've given is that that $34 million is over both programs, both the PF743 or their JZP458, and our PF745 or their JZP341. We also haven't given further guidance, is it on DLA submission approval, any of that.

Andy Hseih -- Walthausen and Company -- Analyst

And two more kind of quick ones for me. I think you mentioned about in many states for automatic substitution. Can you kind of quantify that? How many states or you know, I guess more importantly in terms of the U.S. population, would allow automatic substitution right away without any further steps? And I have a question about what the company is doing with the pipeline asset PF690.

Evert Schimmelpennink -- President and Chief Executive Officer

It's 28 states that have automatic substitution and I believe it's -- those are the -- that covers the majority of the U.S. population. I don't have the exact numbers in front of me. But I think beyond the 28, you could imagine also the ones that are not from a regulatory perspective or a legal perspective in that group, you see effectively the same switch is my experience.

Sorry, and your second question was what we're going to do with --

Andy Hseih -- Walthausen and Company -- Analyst

Yes, because --

Evert Schimmelpennink -- President and Chief Executive Officer

With the [Inaudible] so 690 is indeed a development or a program that Jazz has the rights to, and we'll continue to move that forwardand discuss with Jazz what the best way forward is and how it fits in there in their portfolio.


This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Schimmelpennink for closing remarks.

Evert Schimmelpennink -- President and Chief Executive Officer

Thank you, Danielle, and thanks everybody for joining us. As said before, have a great evening and I hope to see you on the conference circuit soon. Bye-bye.


[Operator signoff]

Duration: 41 minutes

Call participants:

Evert Schimmelpennink -- President and Chief Executive Officer

Susan Knudson -- Chief Financial Officer

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Jason Butler -- JMP Securities -- Analyst

Andy Hseih -- Walthausen and Company -- Analyst

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