An Integrated BioSci Research On Protalix - The Top BioSci Catalyst For 2018
Nov. 1, 2017
Summary
Protalix recently inked a deal with Chiesi for the commercialization of PRX-102 worldwide (except in the USA).
Phase 3 interim data for its Fabry disease franchise will be reported in 2018.
PRX-102 has less antibody formation (and antibodies only stay in the body briefly).
The orphan disease market is lucrative with PRX-102 to potentially become the new standard of care.
Q3 earnings on Nov. 8 will provide updates into the company’s progress.
2017 delivered much wealth for investors, following Integrated BioSci Investing. Bioscience investing is different from investing in other sectors: a catalyst can move a biostock either up or down (by leaps and bounds). Heading into 2018, we’ll go over companies (with notable catalysts) that can potentially increase your wealth. In this report, we’ll feature Protalix BioTherapeutics (NYSE:PLX), an Israel-based firm, focusing on the innovation and commercialization of medicine to treat rare genetic diseases.
Despite that Protalix posted arguably favorable data for the cystic fibrosis franchise, the market didn’t buy what the company was selling. As a result, market bears beat this stock to near submission. Miraculously, the company is showing signs of rebounding in its trading in the later months of this year. Today, the stock traded up by $0.084 at $0.787 (for 12.59% profits) as of 2:07 pm EST. We believe that this is the beginning of many good days for Protalix going forward. And, most value of this investing thesis resides in the fabry disease franchise that has a major catalyst to be unlocked sometime next year - the reporting of the phase 3 trial coined Balance.
Source: Dr. Tran BioSci (Adapted from StockCharts)
With the background elucidated, we’ll walk readers through the underlying science of fabry disease. And, we’ll reiterate this investing thesis that is based solely on the aforesaid franchise.
Fabry Disease
As a rare genetic lysosomal disorder, Fabry disease affects one in 35,000 newborn worldwide. Patients with Fabry lack an enzyme coined alpha-galactosidase A, leading the build-up of globotriaosylceramide (that, in and of itself, causes numerous complications). As alluded, the excessive substrate induces life-threatening functional compromises, including those of the heart, kidneys, and the brain.
For lysosomal storage diseases, the standard treatment is to replace the defective enzyme via enzyme replacement therapy (“ERT”). Due to its rarity, the disease is considered an orphan condition, which enabled the company to raise the price for its drug (to offset development costs). Hence, the premium pricing can substantially increase the intrinsic value of Protalix. Of note,
There are currently three therapeutics utilized for the long-term management of Fabry. Generating approximately $1.2B in yearly sales, the Fabry disease market is growing at a compound annual growth rate ("CAGR") of 10%. Of those medicines, two are enzyme replacement therapies. Agalsidase beta is the ERT that is marketed by Genzyme, the subsidiary of Sanofi (NYSE: SNY). Sold under the brand Fabrazyme, it generated $716M in fiscal 2016. The other ERT Replagal (commercialized by Shire) procured roughly $441M in sales for fiscal 2016.
In May 2016, a new drug in its own class was approved by the European Medicine Agency ("EMA") to treat Fabry disease. Under the brand Galafold, this therapeutic helps abnormal enzymes to fold properly, thus restoring its function, at least to certain degrees. Pioneered by Amicus Therapeutics(NASDAQ: FOLD), Galafold can benefit 30% of all Fabry patients (whose proteins are not extensively damaged and are amenable to folding therapy).
Despite the benefits outweighing the risks, there are associated complications of long-term ERT use - kidney insufficiency and failure. The said complications are due to the antibodies made in the body (in response to the new enzyme being introduced). Consequently, these antibodies clear out the drug, thereby limiting its efficacy.
Linked by a PEG to extend its half-life, Protalix’s ERT, pegunigalsidase alfa (PRX-102) can bypass this issue. Due to differentiated pharmacokinetics profile, the drug showed a much lower level of antibody formation. Equally important, those antibodies stayed in the body only briefly.
Results from earlier trials (the phase 1 and 2 studies) that investigated the safety and efficacy of PRX-102 in 10 patients over 6 months to a year suggested favorable outcomes. With the duration of two weeks of active enzyme in the blood stream for PRX-102 versus half a day for Fabrazyme, the data is encouraging for Protalix.
After a year, patients treated with PRX-102 showed a lower estimated glomerular filtration rate (“eGFR”) reduction than those treated with Fabrazyme: -1.8 vs -3.8, respectively. As a measurement of kidneys function, the lower eGFR declined suggests that PRX-102 is more efficacious than Fabrazyme. Positive impact on heart function and meaningful pain reduction were also observed.
In the said trials, there was only a 19% antibodies formation for PRX-102 versus the significantly higher percentage (74%) for Fabrazyme. The more antibody being produced (against the drug), the less efficacious it will be. Interestingly, all patients treated with PRX-102 who developed antibodies became normalized one year after the treatment. It is not known as to why Protalix's ERT has a much lower level of antibody formation. Taken as a whole, those robust results indicate that pegunigalsidase alfa potentially has stellar safety and efficacy.
Balance Trial
There are two ongoing pivotal trials, assessing PRX-102 as a superior ERT over existing treatments. The Balance trial is a phase 3 randomized, double-blinded study of 78 patients previously treated with Fabrazyme. The study seeks to compare the safety and efficacy of PRX-102 to Fabrazyme. Started in 2016, Balance is investigating the primary endpoint, eGFR for two years (with interim data reporting after a year, i.e. in H2 2018). Protalix intends to file its new drug application (“NDA”) with the EMA, if the results are positive.
Bridge Study
As an open-label, single-arm, switch-over trial, Bridge assesses the non-inferiority (and potential superiority) of PRX-102 versus Replagal. The key limitation of this study is that it is only single-arm (hence, there is no comparator to truly assess the results).
Prognostication
Based on our assessment, PRX-102 has (at least 80% chances within 10% standard deviation) of passing both the Balanced and Bridge trials. We estimated that the drug will be FDA approved in 2019 as the new standard treatment for fabry disease (and to be launched in 2020). Within three years of commercialization, PRX-102 has the potential to reach roughly $1B peak sales.
Source: Dr. Tran BioSci
Two unlikely scenarios can occur. In the less favorable situation (PRX-102 becomes the second line treatment), it should, nonetheless, procure significant revenues. In the best case (it passes the Balanced trial with flying colors), the study may halt early in 2018. This would be similar to the situation that occurred with Intercept Pharmaceuticals (NASDAQ:ICPT) several years ago re the Flint Trial: the early trial stoppage tends to cause the stock to increase multiple folds.
It is important for investors to realize that despite the high likelihood of PRX-102 to dominate the Fabry disease market, there is room for competing molecules. The orphan disease markets operate differently from other bread-and-butter diseases such as high blood pressure (hypertension) or diabetes. Research showed that multiple molecules can generate substantial sales in the same rare disease market. Nonetheless, the first-to-market molecule will have the advantage of taking most shares.
Source: Dr. Tran BioSci
Chiesi Partnership
Aside from the trial reporting next year, Protalix’s share price was recently galvanized due to partnership formation with the private company, Chiesi Farmaceutici (for the commercialization rights to PRX-102 worldwide, except in the USA). Under the agreement, Chiesi is to deliver Protalix $25M upfront payments (and $25M developmental costs, capped at $10M annually). There are also the $320M in milestone as well as 15% to 35% in royalty payments. We believe that this percentage is rather high (and favorable) for Protalix.
We are pleased to partner with Chiesi, an international privately-held company with more than 80 years of experience and a strong focus on the development and commercialization of innovative medicines with commercial presence in virtually all markets outside the United States,” said CEO Moshe Manor. “The $50 million commitment made by Chiesi before any of our ongoing phase III clinical trial results read-out is not only a significant non-dilutive cash infusion for us, it also represents Chiesi’s commitment to the Fabry market in general and our PRX-102 program in particular. With this transaction, we have secured significant and important funding while maintaining full rights to PRX-102 in the US market.
Potential Risks
The primary risk in this investment is that PRX-102 may not pass the phase 3 trials. In that case, the stock will shed roughly 40% of its share price. If the trial shows robust results, the stock can increase by more than 70%. The other concern is that even with stellar results (and regulatory approval), revenues may not be robust (due to the size of Chiesi).
Conclusion
While 2017 has been a rollercoaster ride for Protalix shareholders, the recent commercialization partnership with Chiesi already directed the stock to trade northbound. We expect that the key catalyst (the reporting of the Balance trial) will unlock substantial value (to catapult the stock to its new high). On Nov. 8th, Protalix will hold a conference call to discuss the Q3 results. By then, we’ll get a clearer view of the direction the firm is heading.
Readers wishing to learn more about Protalix can access our prior research on the firm. We also recommend readers to check out stellar analyses by authors, including Jesse Donovan, Gaurao Bhade, Lost Avenue LLC, Lenny Hettmansperger, and Raging Bull
