Long investors in Protalix BioTherapeutics (AMEX: PLX) awoke Friday morning to a press release announcing a CRL (Complete Response Letter) from the FDA. While the stock immediately sold off to the mid 6’s before recovering to mid 7’s (a 19% discount to the previous closing price), investors are left asking, “What went wrong?” Reading over the press release, the FDA appears to be concerned over two issues: CMC (chemistry, manufacturing and controls) and clinical. Directly from the press release:
In the clinical section, the FDA requested additional data from the Company's switchover trial and long-term extension trial. At the time the NDA was submitted, full data from these trials was not available. In the CMC section, the FDA requested information regarding testing specifications and assay validation.
Fortunately for investors, the FDA did not request long-term studies, and following a meeting with the FDA to ascertain exactly what needs to fixed, approval is still an achievable goal. While it is understandable that the FDA wants complete data from the follow-on and switchover studies (investors should learn more when PLX meets with the FDA), it is not clear why the current data included in the NDA was not sufficient to result in approval of the treatment, given the SPA. A post-approval follow-up study I believed would have been appropriate. Furthermore, it is not clear why the FDA has unresolved issues now with CMC, given the recent inspection of the facility mentioned on page 3 of the 10-k.
I had a chance to listen to the conference call, and many of the analysts had insightful questions/comments. With regards to the CMC issues, the issues are not focused around batch to batch variability, but rather tightening specifications, additional data, and assay results. Additionally, Israeli approval will most likely not come before FDA approval. European approval is a wildcard; the submissions to the FDA and EMA were different (EMA included additional data from the switch-over and follow-on studies). Encouragingly, additional data from the cross-over and follow-on studies that was not included in the NDA filing has demonstrated the same hypersensitivity of 7% (now more statistically significant, and similar to Cerezyme) and it should not be difficult and time-consuming to process the data for resubmission.
Conclusion and Future Direction: It is not totally surprising that the FDA is being extremely cautious with this new platform and is clearly covering all its bases (the sell-off could have been much worse), but due to the advantages of Protalix’s unique method of protein expression, ProCellEx, the wait may be worth it. Furthermore, I am encouraged that Protalix continues to advance the pipeline during this period of uncertainty (stated in the conference call). While I view the ultimate approval of taliglucerase as likely, near term risk remains for investors, including dilution. As of the beginning of the year, the company has $35 MM in cash and that is enough to last the rest of the year. However, European approval (EMA) before FDA approval is possible, triggering a $25 MM payment from Pfizer (PFE) and mitigating dilution risk. Furthermore, a class 1 resubmission to the FDA could result in upside potential and provide a quick path to approval; however, I believe a class 2 resubmission is more likely with an anticipated timeline for approval of 8-12 months.
Disclosure: I am long PLX.