PROTALIX BIOTHERAPEUTICS, INC. (PLX)

[Spideyboy]

Hi wgg2, Thanks be to you too for your comprehensive outlook and inspiring me to do a PLX valuation too. I know this is a long post but both providing my thought on cost and then describing my valuation and logic.

In general I think PRX-102 will have one price per mg of finished product. I assume like Fabrazyme it will be provided in 5mg and 30mg vials. Regards the 1mg/kg once per 2 week or 2mg/kg once per month dosing, I don't think that will create a differential in price as that will simply be up to the physician to decide to prescribe it at whichever dosing schedule is best, as the dose itself over that time-period would remain the same.

Purely based on the Balance trial, I do agree that I expect it to be priced at the same or at a slight premium to Fabrazyme, given the significantly better immunogenicity profile and safety benefits, of:
- 4 fold lower Treatment Adverse events
- 8 fold less for Infusion Related Reactions
- Neutralising Antibody (nAb) reduction reduction by 18% (33% to 15%), whereas no real reduction on Fabrazyme (28% to 26%), over the 2 year trial period.
- Reduction of use of pre-medication on PRX-102, which was not seen for Fabrazyme.

Note the EMA COMP has just last week re-affirmed the Orphan Designation of PRX-102, for which Orphan can only be given if it is deemed that the new product presents "significant benefits" over existing marketed therapies. So even in the eyes of the EMA PRX-102 characteristics are superior to the current EU available Fabry drugs, Fabrazyme, Replagal and Galafold.

The advantages of the once per month dosing label for the mild segment, if also approved, this I think we can be a little less sure of, could also warrant a general higher price, due to the increased convenience to hospital, physician, nurse and patient, but not specific to the once per month dosing.

However I think the price will not be significantly higher to Fabrazyme at launch, because a) the price of Fabryzyme is already very high and b) I think they will want to capture as much market share as quickly as possible from the relatively small community of physicians and patients. Of course as is the way with pharma, if the product does well, then they can raise prices later after patients are already on the product and physicians will be more experienced with the treatment and its benefits which will make it harder to switch back to worse performing Fabrazyme, based on the Balance trial patients.

I do think they could stand to take significant market share as:
- The patients in the trial had a mean eGFR of 73 (range: 30 to 126), and a eGFR slope of -8.1 (range -32.6 to -2.1) despite being on Fabrazyme for at least 1 year, however the Balance study patients had already been on ERT for a mean of 8 years prior to enrollment in the trial. So this covers a wide spectrum of patients from moderate to severe, so physicians should be happy to use PRX-102 for all these 2 groups.
- Meanwhile the patients in the BRIGHT study which were of a eGFR slope less than 2, appear to have stabilised with equal performance to healthy individuals, with no new ADAs, reduction of infusion times and no related AEs. So as long as it gets the label, I definitely think a significant proportion of patients and physicians of mild segment whether on Fabrazyme or Replagal will switch to PRX-102. Additionally I would find it interesting to see a segment of patients on Galafold switch to PRX-102 once per month.

One must note that as well as the physician community being small, the patient community is well connected and will discuss PRX-102 which will speed up uptake.

In the EU & ROW, I would expect Replagal to suffer significant losses to PRX-102. The Bridge results were phenomenal on efficacy as well as on safety no new neutralising anti-bodies following switch.

On the financials:

I agree with your 70 million shares outstanding in two years, based on any conversion of notes that most likely will happen, but would be great to see PLX maybe even just pay those off instead of converting. However that is probably les likely as if the SP goes up nicely the note holders stand to benefit more from converting.

I find it hard to take into account all the details of tax loss etc in making assumed valuations and others needed in a DCF model. My method is far more rudimentary :) I simply assume that based on potential Protalix transfer fees and royalties across both EU and USA of at least 90 million USD in first 12 months and then I apply a multiplier of 15 = MarketCap after both EU & FDA approvals of 1.35 billion USD.

My 90 million in first 12 months of sales assumption is simply based on the following:
Top 3 Fabry products are on course to report a 1.8 billion dollar revenue total in 2022.
- on course for 938 million for Fabryzyme
- on course for 520 million for Replagal
- on course for 330 million for Galafold (I know not an ERT, but I think a portion of these opt for PRX-102 if better efficacy on eGFR and pain symptoms, abdominal symptoms and assuming approval of once per month dosing)

Taking patient share from the above, I assume a conservative in first year 20% from Replagal (104 million), and 15% from Fabrazyme (140 million), and 10% from Galafold (33 million) = Total PRX-102 revenue 277 million.

I assume royalties at about 25% for that much total revenue = 69 million + Transfer of substrate revenues about 20 million (about 5-6 million per quarter) = 89-90 million Protalix revenue first year.

Hence 90 million USD x 15 multiplier = 1.35 billion USD Market Cap for the first year

Hence 1.35 billion market cap divided by 70 million shares = 19 USD per share target price after both EU and FDA approvals. (I know I have counted in Japan sales here too, but if they get EU and FDA approvals and now already have their Japan bridging study ongoing, I find it more logical just to count that in for the target price).

However, one must also note that this 90 milllion revenue is essentially 100% profit from drug product as Protalix does not have outgoing commercial, sales and marketing costs or increased headcounts associated to these. Therefore I think one can go with a 20 times multiplier, so getting closer to a 1.8 billion dollar valuation in the 1st year.

As an example if we look at Amicus, who makes Galafold, they currently have a 3.7 billion dollar market cap, that market cap coming from only 330 million projected 2022 full revenue from Galafold, BUT a 180 million dollar net loss in the 1st 9 months 2022, so at least a 213 million net loss for 2022.

So this 90 million of pure profit already places Protalix's financial security above that of Amicus. Technically a 1 million of pure profit place Protalix's financial security above that of Amicus :) I do appreciate that Amicus has just got positive CHMP opinion for its Pompe therapy in EU, but I'm not convinced it's that much better than existing treatments. As it missed the primary endpoint vs Lumizyme, of which Lumizyme itself wasn't better than the initial drug avalglucosidase alfa.

Amicus assumes reaching profitability thanks to the addition of Pompe sales in 2023. But that profitability would be lower than for Protalix and Amicus is sitting at a 3.7 billion dollar valuation!

Protalix will soon engage in more R&D for Gout, but I sincerely doubt that the costs of the Phase I will run anywhere near the profits made, as the gout trials should be faster, at about 6 months active treatment time (vs BALANCE 24 months). And current gout ERT pegloticase managed to complete its registrational phase 3 trial with 225 patients in about 1.5 years total time.
https://clinicaltrials.gov/ct2/show/NCT00325195?term=pegloticase&phase=2&draw=2&rank=2

Note also that we have not counted-in the security of additional capital we should have from the initial Chiesi milestone payments for both EMA and FDA approvals, respectively, which while not from product revenue help the balance-sheet and thus buoy the value of the company as more R&D gets underway.

Essentially though I give PLX a 1.3-1.8 billion dollar market cap for the first year, with Target price at 19 to 26 at both those levels. So add on a bit more time and we get closer to your 30 dollar target price in about 2 years.

After that we shall just have to see how much market share PRX-102 can keep taking from Fabrazyme and Replagal, which I feel will continue over the years. I assume just the above mentioned about 10% from Galafold will be a relatively quick switch-over, but then plateau quickly too as the remaining 80-90% on Galafold will probably stick with it for some time to come due to convenience as a daily oral drug.

Thanks for inspiring to work on the valuation and target price! And thank anyone reading this for their patience if they got this far :)

Best,
Spidey