Israel-Medical-Healthcare

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PLX 42c With Positive Phase 2 Data A Major Partnership Is Just Around The Corner. 12-Mo Target $3/Share

http://seekingalpha.com/instablog/44479986-leny-hettmansperger/4946870-plx-42c-positive-phase-2-data-major-partnership-just-around-corner-12-mo-target-3-share

Jan. 4, 2017 5:42 AM ET|1 comment |Includes:Protalix BioTherapeutics, Inc (PLX)

Investment Highlights:

On January 3, 2016, Protalix Reported positive interim results in a Phase 2 clinical trial assessing AIR DNase (alidornase alfa) in patients with cystic fibrosis (NYSE:CF).
Continued success of AIR DNase (alidornase alfa) suggests that it will become a key treatment for all CF patients unlike other treatments that only benefit a portion of CF patients.
AIR DNase is going after $700M/year Roche's Pulmozyme (dornase alfa) and other FDA-approved drugs. Today's results show significant advantages over Pulmozyme's performance.
Protalix pipeline has a $10B billion addressable market - a drug in Phase 3 to treat Fabry disease, AIRDNase for CF, and another in Phase 2 to treat ulcerative colitis.
The company believes that it is funded through the end of 2019 with current cash on hand and sales of its FDA-approved drug alfataliglicerase to treat Gaucher patients in Brazil.
Discussion:

Protalix BioTherapeutics (NYSE:PLX) is a clinical-commercial biotec company focused on the development and commercialization of recombinant therapeutic proteins based on its proprietary ProCellEx platform. More details about the company can be found in my December 28, 2016 article "Protalix BioTherapeutics Receives $24M Order, Is Well Funded, And Has Significant Upside."

On May 1, 2012 Protalix and its partner Pfizer (NYSE:PFE) announced that the FDA approved ELELYSO (taliglucerase alfa) for injection, an enzyme replacement therapy (NASDAQ:ERT) for the long-term treatment of adults with a confirmed diagnosis of type 1 Gaucher disease. This was the first FDA-approved plant cell-expressed drug that is derived from ProCellEx, Protalix's proprietary manufacturing system, using genetically engineered carrot cells.

David Aviezer, Ph.D., MBA, the then President and CEO of Protalix commented,

"We believe that this great news is a recognition of our technology, which is a plant cell manufacturing system from Protalix. This technology is the production process behind taliglucerase alfa and other plant-based Protalix product candidates using our ProCellEx, proprietary manufacturing system."

At the time of the FDA news PLX traded at $7.6/share corresponding to a market cap of over $500M, or ten times higher than today's fully-diluted market cap.

Protalix Engineered Plant-Based Drugs Are Batting 1000

Protalix, having the first genetically-engineered plant cell-based protein approved by the FDA, has paved the way for its other drugs developed by the company's ProCellEx technology platform.

Let me first review today's positive interim Phase 2 news related to AIR DNase (alidornase alfa) to treat Cystic fibrosis. This phase of the trial is a 28-day switch-over study in cystic fibrosis patients previously treated with $200B Roche's (OTCQX:RHHBY) dornase alfa or Pulmozyme.

Moshe Manor, Protalix's President and Chief Executive Officer commented on the interim results:

"We are enthusiastic about the data generated in this trial as we were able to see meaningful improvements in efficacy in a way that have not been reported for a long time in the challenging CF space. We are looking forward to reporting full results from the study before the end of the first quarter of 2017."

Professor Eitan Kerem, Chairman of Pediatrics, Head of The Cystic Fibrosis Center, Hadassah University Hospital added:

"The preliminary efficacy results of alidornase alfa are very encouraging, even when compared to past trials of approved drugs for the treatment of CF. Although the study was performed on a small number of patients, the data is very encouraging since it shows clinically meaningful results. I look forward to following the results of upcoming trials of alidornase alfa. If the data continues to be as positive, clearly alidornase alfa will be a key treatment for all CF patients."

Key results shared by the company for this interim report were:

Interim Phase 2 data showed that alidornase alfa improved lung function by 4.1 points from baseline as measured by percent predicted forced expiratory volume in one second (ppFEV1). This compares favorably to a mean of 2.5 achieved by a commercially available CFTR modulator.
A mean reduction of approximately 60% in DNA content from baseline in sputa was observed, and a mean reduction of approximately 90% from baseline was observed for sputa visco-elasticity.
No serious adverse events were reported, and all adverse events that occurred during the study were mild and transient in nature.
Before I discuss the importance of the findings above, I believe that it is necessary for investors to understand some basics about Cystic fibrosis.

Cystic fibrosis is a complex disease and the types and severity of symptoms can differ widely from person to person.

In people with cystic fibrosis, a large defective gene or DNA causes a thick, buildup of mucus in the lungs allowing germs to multiply. Lung infections, caused mostly by bacteria, are a serious and chronic problem for many people living with the disease. Additionally, as the patient swallows these secretions, often while they are asleep, the pancreas becomes compromised as it is blocked and unable to secrete enzymes that normally breakdown food and enable the body to absorb vital nutrients. In the liver, the thick mucus can block the bile duct, causing liver disease. Men with cystic fibrosis are often to have children.

The cost of CF to the US economy has been estimated to exceed $20B as CF patients, their relatives, and even friends and coworkers can have their lives adversely affected in many ways.

According to the Cystic Fibrosis Foundation Registry, more than 30,000 people are living with cystic fibrosis in the United States and more than 70,000 worldwide. Approximately 1,000 new cases of CF are diagnosed each year. The majority of CF patients are Caucasians-Americans and estimated to carry the disease 1 in 2,500 to 3,500 individuals.

There are currently two main FDA-approved treatment classes being used to treat cystic fibrosis. One of them is mucus thiners like Roche's (OTCQX:RHHBY) dornase alfa or Pulmozyme, and the other category is known as CFTR modulator therapies represented by ivacaftor (Kalydeco) and lumacaftor/ivacaftor (Orkambi). Together they represent almost $2B in yearly sales with Pulmozyme reportedly representing $700M in 2015 according to estimates by GlobaData.

Protalix AIR DNase is a disruptor CF treatment going head-to-head against Pulmozyme, and indirectly against CFTR treatments.

AIR DNase is a plant cell recombinant form of deoxyribonuclease I (DNase I) with Actin Inhibition Resistance or AIR formulated and engineered exclusively by Protalix scientists. AIR DNase, which is administered via inhalation, cleaves large DNA that accumulates in the lungs causing a viscosity reduction of the sputum making it easier to clear up the lungs of CF patients. AIR DNase was designed to be very stable and resistant to chemical alterations.

It is believed that the molecule used in Pulmozyme tends to binds to actin. The actin-bound dornase alfa becomes enzymatically inactive and therefore unable to breakdown large DNA in CF patients' lungs.

With this background I will now discuss the main two interim results from today's announcement and why I believe AIR DNase is a disruptor treatment that could make a big dent on sales of dornase alfa or Pulmozyme, and ivacaftor (Kalydeco) as well as lumacaftor/ivacaftor (Orkambi).

The easiest comparison of AIR DNase is with Pulmozyme because the mechanism of action is basically the same, to cleave large DNA strands so that the resulting lower intact DNA content in mucus thus reducing mucus viscosity. This in turn makes phlegm and sputum easier to evacuate from the lungs, and also helps prevent swallowing it to minimize liver, pancreas, digestive, and reproduction complications.

The results so far are very dramatic. The ability of AIR DNase to resist actin binding contributed to a 60% reduction in DNA content from baseline in sputa. This is turn cause a mean reduction of approximately 90% from baseline for sputa viscosity. Remember that all these parameters are comparing to Pulmozyme performance. The 90% reduction in sputum viscosity is even better than the one observed in vitro in Phase 1.

There is no direct comparison against Kalydeco and Orkambi because they are different mechanisms used for treating CF. According to the Cystic Fibrosis Foundation,

"CFTR (cystic fibrosis transmembrane conductance regulator) modulator therapies are designed to correct the function of the defective protein made by the CF gene. Because different mutations cause different defects in the protein, the medications that have been developed so far are effective only in people with specific mutations."

Ivacaftor (Kalydeco) is prescribed for people ages 2 and older who have at least one of 10 different mutations in the CFTR gene. The lumacaftor/ivacaftor (Orkambi) combination therapy is prescribed for people ages 6 and older who have two copies of the F508del mutation, which is the most common CF mutation. Neither of these treatments can be administered to all CF patients because they only handle a few mutations of the CFTR gene. Although the concept for these treatments is great in that they attempt to address the root cause of the CF problem they have great limitations.

Common side effects of Kalydeco include: Headache, upper respiratory tract infection (common cold, including sore throat, nasal or sinus congestion and runny nose), stomach pain, rash, nausea, dizziness.

Common side effects of Orkambi include: Shortness of breath and/or chest tightness, Upper respiratory tract infection (common cold, including sore throat, nasal or sinus congestion, and runny nose), nausea, diarrhea, rash, fatigue, abnormal or irregular menstrual periods, increased bleeding, and flu-like symptoms including the flu.

Because AIR DNase will be able to treat any CF patient regardless of what gene mutation is causing cystic fibrosis, it is a possible replacement for Kalydeco, Orkambi, and more directly Pulmozyme. Its improved safety profile is another bonus, particularly over Kalydeco and Orkanbi both having serious side effects.

The company website does an excellent job discussing pegunigalsidase alfa PRX 102 in Phase 3 for the treatment of Fabry disease. The data shown there clearly indicates that this molecule has many advantages over the molecules it aims to replace.

The website describes pegunigalsidase alfa as a "plant cell culture expressed and a chemically modified version of the recombinant alpha-Galactosidase-A protein. Protein sub-units are covalently bound via chemical cross-linking using PEG chains, resulting in a more active and stable molecule than the current available versions. PRX 102 demonstrated enhanced circulatory half-life, with higher enzyme activity in target organs affected by Fabry disease."

Investors will also find excellent information on Phase 2 results of OPRX-106 for the treatment of ulcerative colitis. The website describes this compound as a "plant cell-expressed recombinant human tumor necrosis factor receptor II fused to an IgG1 Fc domain (TNFRII-Fc), in development for oral administration. When administered orally and while passing through the digestive tract, the plant cells function as a natural delivery vehicle, having the unique attribute of a cellulose cell wall which makes them resistant to degradation compared to proteins produced via mammalian cell expression."

The following slide from the December 2, 2016 company presentation summarizes the status of the current pipeline

(click to enlarge)

In summary, Protalix plant-base genetically engineered molecules have many advantages over their mammal-derived counterparts. The key here is the ProCellEx proprietary platform which I discussed in some detail in my December 28, 2016 article.

Every step of every clinical trial performed thus far, including an already FDA-approved drug, demonstrates the robustness of the company's ProCellEx technological platform. It also shows the ingenuity and vision of the company's scientists to design molecules aimed at overcoming the limitations of currently available FDA-approved treatments.

Valuation

The current $50M fully-diluted market cap is only one tenth of what it was after the company's 1st FDA approved drug. The company now has three programs with high probability of success, one in phase 3 and the other two in phase 2. At the time of the FDA approval, the pipeline was very weak. With almost $80M in cash, expected $40M revenues in 2017, one FDA-approved drug, and three potentially blockbuster drugs in the pipeline, the company should have a market cap of at least $250M. Analysts covering the stock have a STRONG BUY rating on the stock with a $2.4/share price target. This corresponds to a fully-diluted market cap of almost $300M.

The price action after today's Phase 2 announcement was not a complete surprise to me. This is because with Stocktwits and services like that there are many more short-term traders than ever before looking to make "easy money." The buildup of interest in the stock was significant in the last few days, but it was obvious that posters were pretty ignorant about PLX from the comments they were making. Deep-pocketed pro traders saw this and they shorted the stock from the opening bell until they felt that the resistance was great enough that they could not drive the price lower without some risks. This was actually good for long-term holders like myself because I expect strong hands to enter the stock going forward. I've already discussed that institutional buying has been very strong in my December 28, 2016 article. I expect more of this going forward. In fact, I believe that PLX is at point where AMD was at this time of the year last year. I expect the same type of steady upward move for PLX in 2017:

(click to enlarge)

Potential partnerships

Rest assured that the progress that Protalix is making on the clinical end is not going unnoticed by big pharma. Pfizer for instance is already in bed with them with their FDA-approved treatment for GD. Furthermore, PFE owns over 5 million shares of PLX and they think very highly of the Protalix as seen in this video. The other logical partner would be Roche. I don't think they would be happy to lose a $700M high-margin Pulmozyme revenue stream. Company officials already stated that they will be looking for partnerships as soon as Phase 2 Cystic fibrosis results would be known. Their PFE partnership has already yielded over $100M since inception, and the money keeps flowing in as PLX makes the GD product for them.

Conclusions

PLX is grossly undervalued at current prices. I believe the stock performance in 2017 will start resembling AMD's performance in 2017.

It is not often that I can say with confidence "buy this clinical-stage biotec without fear." I say this because the company has stated that they are well funded at least through the end of 2019. And this is not even considering a potential partnership which would extend their runway to commercialize new products significantly. Most biotecs are more than eager to execute one equity raise after another causing the erosion of shareholder value.

The success so far of Phase 2 Cystic fibrosis can not be overstated. This is a significant, highly-disruptive program that I am confident will benefit shareholders greatly in the long run. The two other programs in the pipeline are also on strong footing and they address a combined $6B addressable market.

I expect final Cystic fibrosis Phase 2 results scheduled to be revealed before the end of 1Q 2017 to be a success. I believe this will accelerate the path to a lucrative partnership now that Protalix has more leverage than it did when it entered into a partnership with Pfizer.

Investors interested in investing in PLX shares should read all the risks and uncertainties as detailed in the most recent filings with the SEC, in addition to considering the ones that I've listed above.

Disclosure: I am/we are long PLX.