Protalix BioTherapeutics Is A Tightly Coiled Spring
Jul. 20, 2017 4:20 PM ET|
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About: Protalix BioTherapeutics, Inc (PLX)
Jesse Donovan
Jesse Donovan
Small-cap, natural resources, biotech, tech
(175 followers)
Summary
A flurry of recent positive developments have not translated into a substantial increase in the share price of Protalix.
In fact, misunderstanding of phase 2 clinical data for alidornase alfa to treat cystic fibrosis has sent the share price to multi-month lows.
This market misunderstanding creates a buying opportunity for investors who are able to understand the positive nature of the phase 2 results.
Protalix has significant upcoming revenues which Q3? 2017 revenues will likely be strong and should instil optimism in shareholders and will help to fund upcoming clinical trials.
The upcoming phase 2 results for the clinical trial of OPRX-106 could serve as a catalyst which propels the share price of Protalix to a significantly higher level.
Protalix BioTherapeutics (PLX) has seen its share price decline significantly in the last several months. Several positive developments have occurred during this period but none have served to re-inflate the company's share price. Therefore, Protalix is a quintessential example of a coiled spring. Each new positive development has increased the fundamental value of Protalix and has coiled the spring tighter. When Protalix's share price begins to move towards the company's true value, explosive growth could occur.
This article will briefly provide an overview of Protalix and its share price movement over the past year. Next, the market's misunderstanding of the phase 2 clinical data of alidornase alfa for the treatment of cystic fibrosis will be discussed. Finally, recent positive developments and upcoming catalysts will be explored. It will be demonstrated that Protalix's share price has become tightly coiled and is poised to surge in the near future.
Protalix BioTherapeutics
Company Overview
Protalix is a clinical stage biopharmaceutical company which aims to treat an array of medical conditions with plant-based recombinant proteins developed through its proprietary ProCellEx system. As illustrated in the image below, Protalix has three drugs currently in clinical trials.
Protalix Pipeline Overview
Source: Protalix BioTherapeutics
In a previous article titled 'ProCellEx Has The Potential To Upend The Biopharmaceutical Sector' I described the immense potential of Protalix's proprietary plant-cell expression system. Protalix is known for being the first company to have a plant-cell derived pharmaceutical approved by the FDA. Elelyso, for treatment of Gaucher disease was developed through the ProCellEx system using plant cells and was approved on May 1st, 2012.
Protalix Share Price
A one year snapshot of Protalix's share price illustrates a rapid rise, a steady decline, and a recent stabilization. Explosive growth took place from early January to April, 2017. A sharp decline from April to mid-May then significantly reduced the share price. Finally, there has been a stabilization around the $.80 level through June and July.
Chart PLX data by YCharts
An additional chart illustrating pinpointing the beginning of the recent decline helps to elucidate the movement of the share price. On April 12th, 2017 the the results of the phase 2 clinical data of alidornase alfa for the treatment of cystic fibrosis were released. It would be natural, at this point, for an investor who is unfamiliar with Protalix to assume that the clinical trial was a failure. In fact, the company referred to the results as "positive" stating that a "clinically meaningful lung function improvement" was detected among other beneficial outcomes. Clearly, a deeper investigation into the phase 2 data is required.
Chart PLX data by YCharts
First, it will be illustrated that the sharp decline was likely the result of investors misunderstanding the results of the phase 2 clinical data of alidornase alfa for the treatment of cystic fibrosis. The rest of this article will demonstrate that the recent decline in Protalix's share price could be rapidly reversed by any of three potential catalysts.
Phase 2 Data Misunderstanding
This section of the article will assess the market's understanding of the phase 2 clinical trial data of alidornase alfa for the treatment of cystic fibrosis which were released on Apr. 12, 2017. It will be argued that the market misunderstood the results of the trial. Initially, this may seem like a bold claim. Proponents of the efficient market hypothesis may instinctively recoil at the idea that the market could be so wrong. Upon further analysis of the data, however, any other conclusion seems impossible.
First, the characteristics of cystic fibrosis and the nature of alidornase alfa will be described. Second, the trial format and clinical data will be presented and explained. Second the incorrect way to interpret this data will be discussed. Finally, the correct way to understand the data will be described.
Cystic Fibrosis and Alidornase Alfa
Cystic fibrosis causes highly viscous (thick) sputum to accumulate in the lungs of patients which can lead to infections and reduced lung function. The existing therapy which is generally recommended is called DNase I and its effect is countered by the protein actin, which is found in high concentration in the lungs of patients suffering from cystic fibrosis. In sum, cystic fibrosis patients require a form of medication which reduces the viscosity of sputum in their lungs, decreases their risk of infection, increases their lung function, and is resistant to actin.
Alidornase alfa is a proprietary plant-cell deribed recombinant therapeutic protein developed by Protalix. Alidornase alfa is intended to address the address the shortcomings of existing treatments by:
improving lung function;
decreasing risk of infection;
reducing sputum viscosity;
demonstrating actin-resistant properties.
A final advantage associated with alidornase alfa is that, unlike other cystic fibrosis treatments, it is intended to be used by all cystic fibrosis patients regardless of their specific mutation of the disease.
Clinical Trial Design
Sixteen patients were enrolled in the phase 2 clinical trial which aimed to assess the safety and efficacy of alidornase alfa on cystic fibrosis patients. Patients were instructed to cease using Pulmozyme, which is the only approved DNase treatment on the market, for two weeks before beginning alidornase alfa treatment.
Put simply, FEV1 measurements calculate the volume of air which a patient can exhale during one second. As stated by the Center for Disease Control,
The FEV1 is useful for detecting obstructive diseases since a person with obstructed airways will not be able to exhale as much air in the first second as a person with normal lungs.
Interim Results
The interim results were released on January 3rd, 2017 for the first 13 CF patients who were enrolled in the study. The interim trial results demonstrated that,
the initial primary efficacy result shows that alidornase alfa improves lung function as demonstrated by a mean absolute increase in the percent predicted forced expiratory volume in one second (ppFEV1) of 4.1 points from baseline.
In addition to the improved FEV1 measurement, sputum viscosity was reduced by around 90% from baseline. As mentioned above, the reduction of sputum viscosity is essential to the reduction of infection risk and the increase in lung function.
The interim results were invariably viewed as a success. Protalix CEO Moshe Manor stated,
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.
The market also responded positively, gaining 5% premarket after the release of the results.
Final Results
The finals results were released on April 12th, 2017 for sixteen patients, all of whom completed the trial. The final results demonstrated that alidornase alfa was associated with a 3.4 ppFEV1 improvement when compared to the baseline measurement and a 3.3 ppFEV1 improvement as compared to the existing treatment, dornase alfa. Furthermore, the results displayed a significant reduction in ppFEV1 when patients stopped taking alidornase alfa.
In sum, the final results of the phase 2 clinical trial of Protalix's alidornase alfa demonstrated a significant improvement in efficacy when compared to the existing treatment. In addition to the ppFEV1 improvements, use of alidornase alfa was also found to be associated with significant improvements related to actin-resistance, reduction in sputum viscosity, and infection resistance.
Earlier in this article it was mentioned that the protein actin impedes the efficacy of existing drugs which aim to reduce the viscosity of mucus in patients' lungs. The clinical trial results demonstrated that alidornase alfa remains active for far longer and is more resistant to actin than Pulmozyme, the main treatment on the market today. The actin-resistant nature of alidornase alfa is demonstrated in the graph below.
Source: Protalix
Alidornase alfa also demonstrated a more significant reduction in viscocity than Pulmozyme.
Source: Protalix
Finally, alidornase alfa displayed "a significant inhibition of Pseudomonas Aeruginosa, with alidornase alfa treated colonies reduced by over 50%, compared to baseline. Pseudomonas, strains of bacteria that are widely found in the environment, are a major cause of lung infections in CF patients".
Source: Protalix
Incorrect Analysis
Despite the positive nature of the interim and final results of the phase 2 clinical trial, the market responded negatively. It is likely, therefore, that at least some investors misinterpreted the data. In an rudimentary analysis on the publicly-traded investment website TheStreet, an article titled 'Protalix Bio Cystic Fibrosis Drug Study Results Worsen Over Time' incorrectly analyzed the phase 2 data. This incorrect analysis is important to debunk for two reasons:
Some investors who were unwilling or unable to conduct their own due diligence may have followed this analysis.
The thought pattern behind the article may represent how many investors also interpreted the data.
The main aspect of the author's analysis is the mistaken notion that "the data got worse" because the ppFEV1 improvement measured in the final results was lower (3.4) than the ppFEV1 improvement measured in the interim results (4.1). This is an incorrect analysis for three reasons:
There does not need to be a ppFEV1 improvement that is the same from the interim results to the final results. The most significant aspect of the results is actually whether the final results demonstrate a clinically meaningful improvement that is better than the predominant medication on the market used to treat the same symptoms;
It is important to focus on other aspects of the trial results such as actin-resistance, infection reduction, and reduction of sputum viscosity. These aspects of alidornase alfa are important to cystic fibrosis patients and must be considered;
Finally, it is not immediately clear whether the ppFEV1 of the patients degraded or whether the patients added to the final part of the trial displayed less benefit from the treatment than the patients in the interim analysis. With such a small study population, averages can likely be skewed fairly easily.
Furthermore, the author stated that, "importantly, the phase IIb study discussed Wednesday did not compare alidornase alfa to Pulmozyme." This is patently false. As many of the graphs above illustrate alidornase alfa was compared to Pulmozyme on a number of indicators. Finally, the author failed to assess important indications of efficacy such as infection risk, sputum viscosity, and actin-resistance.
Correct Analysis
The most important aspect of the data is the comparison between alidornase alfa and pulmozyme. If alidornase alfa is more effective than pulmozyme on a wide range of measurements, which appears to be the case from the data, then the phase 2 clinical trial results can correctly be characterized as positive. The difference between the interim and final results is only a material consideration if the final results show that alidornase alfa is worse than the current standard of care. This was not the case.
Recent Positive Developments
There have been several positive developments recently at Protalix which have not succeeded in raising the share price up. It will be argued that these developments have increased the company's value and coiled the share price spring tighter.
On April 18th, 2017 Protalix announced that its PRX-102 (pegunigalsidase alfa) drug for treatment of fabry disease showed significant effect in treating "inflammation of the peripheral nerves" in mice. Neither Fabrazyme nor Replagal, existing fabry medications, demonstrated any effect for this indication. This demonstrates the potential for PRX-102 to displace existing treatments and disrupt the fabry market.
Further positive news arrived on June 1st, 2017 as Protalix announced that the FDA had approved a Supplemental New Drug Application which allows the company to convert its single-product manufacturing facility into a multi-product facility. This development places Protalix in a positive position for the anticipated commercialization of pegunigalsidase alfa for fabry disease as well as the ongoing taliglucerase alfa manufacturing.
Upcoming Catalysts
This section will discuss three potential catalysts which could unleash the coiled spring that is Protalix:
Upcoming revenues from sales of taliglucerase alfa;
Phase 2 results from clinical trials for OPRX-106 for the treatment of inflammatory diseases.
Recognition from the Cystic Fibrosis Foundation (CFF) and/or a CFF developmental grant.
Upcoming Revenues from Taliglucerase Alfa
The first potential catalyst for Protalix is the upcoming reporting of revenue from sales of its taliglucerase alfa drug for treatment of gaucher disease to Brazil. Brazil's ministry of health placed orders for three shipments of the drug slated to arrive throughout the second half of 2017. These sales should bring in over $24 million in revenue and should bring Protalix "close to breakeven in 4Q 2017".
OPRX-106 Phase 2 Results
The phase 1 clinical trials of OPRX-106 for the treatment of inflammatory diseases has been completed and demonstrated to be safe and well-tolerated by patients. The phase 2 clinical trials are ongoing and, barring any delays, Protalix will announce the results from these trials in the second half of 2017. Because the potential market for this type of medication is over $30 billion, positive phase 2 results could significantly move Protalix's share price forward.
CFF Recognition and/or Grant
A significant potential catalyst related to alidornase alfa could come in the form of formal recognition or a development award from the Cystic Fibrosis Foundation. Progress has already been made in this direction. On May 10th, 2017 Protalix announced that,
The Cystic Fibrosis Foundation invited Protalix to submit a Letter of Intent to its Therapeutics Development Award program, following their initial review of our phase II clinical trial final results. Protalix welcomes the opportunity and also intends to seek the foundation’s guidance and advice for the further development of alidornase alfa.
CFFT Therapeutic Development Awards help fund clinical trials of drugs like alidornase alfa which are aimed at treating the symptoms or underlying causes of cystic fibrosis. A development award for a biotech company at clinical stage trials could receive approximately $1.2 million annually for 2 years in order to cover direct costs associated with clinical trials. A CFF development grant would provide Protalix with more funding to complete its future trials of alidornase alfa and would also help put to rest any notion that the phase 2 clinical trial results were a failure.
Financial Position
It is important for investors to consider the financial position of any clinical-stage biotechnology company before taking a position. This section will assess Protalix's cash burn rate and cash on the balance sheet in order to illustrate how long the company can finance ongoing operations and clinical trials. This will also help readers determine if and when dilution may be required.
Protalix has a fairly strong cash position with around $48 million as of March 31st, 2017. An operating loss of around $6.3 million was reported for the same period. There are several convertible notes which are due in the near future including, a$14.9M convertible note due by September 2018 and a $54.9M convertible note due by November 2021. The company's total liabilities as of March 31st, 2017 amounted to just over $140 million.
According to Protalix, the current cash level and consumption rate should mean that the company will remain financed into 2019. As mentioned above, the sales of taliglucerase alfa to Brazil should create significant revenue and help fund Protalix's operations in the near future.
Risks
It is possible that none of the potential catalysts listed above will work out as hoped by Protalix shareholders. The taliglucerase alfa revenues could disappoint or fail to materialize if Brazil decides not to purchase the drugs. The OPRX-106 results could fail to meet primary or secondary endpoints. Finally, the CFF could decide not to participate with Protalix. Alternatively, it is entirely possible that all of the above catalysts could occur but the share price could still fail to reflect the value of the company. That is to say, the share price could continue to stagnate even as positive developments continue to occur. This would mean that the Protalix spring would coil even tighter.
Conclusion
Investors searching for a undervalued company with near-term catalysts should strongly consider Protalix. The market misunderstanding of the phase 2 clinical trial data provides an excellent opportunity for investors to take large positions in Protalix prior to the three upcoming catalysts.
Disclosure: I am/we are long PLX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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