Protalix BioTherapeutics Finally Receives FDA Approval To Market Elelyso For Enzyme Replacement Therapy In Gaucher's Disease

Patient investors in Protalix BioTherapeutics (NYSEMKT:PLX) were finally rewarded after the market close on Tuesday, May 01, 2012, when the FDA announced via press release that they approved Protalix's new orphan drug (Elelyso, prescribing information here) to treat a form of Gaucher disease:

"The U.S. Food and Drug Administration today approved Elelyso (taliglucerase alfa) for long-term enzyme replacement therapy to treat a form of Gaucher disease, a rare genetic disorder….Elelyso is an injection that replaces the missing enzyme in patients with a confirmed diagnosis of Type 1 (non-neuropathic) Gaucher disease and should be administered by a health care professional every other week. Type 1 Gaucher disease is estimated to affect about 6,000 people in the United States."

This has been a long and tortured ride for Protalix longs (and their partners at Pfizer (NYSE:PFE)), which saw prices as high as $10-11/share in February 2011 when taliglucerase alfa was up for approval the first time around (PDUFA date of February 25, 2011). Following a CRL that morning, shares languished with the overhang of a dilutive secondary. Eventually, Protalix raised capital (4MM shares @ $5.50/share) and a few months later the "Dendreon Flu" struck the biotech sector, taking Protalix down below $5/share. In addition, the FDA extended the PDUFA date by 3 months, from February 1, 2012 to May 1, 2012 as a result of Protalix submitting additional clinical information, standard practice for information received within 3 months of the original goal date. Again, in February, 2012 Protalix raised capital (5.17 MM @ $5.25/share).

Commercialization ˗ Launching a new drug is always expensive and challenging, but launching a drug in an orphan indication is a little bit easier. The Gaucher's population is well-defined and well-understood relatively speaking, and is treated by a limited number of specialists. Here, I expect Pfizer to throw its substantial marketing muscle behind the launch, seeing as they receive 60% of the revenues (40% to Protalix, 100% in Israel). Looking at the competition, Protalix should benefit from a recent CRL given to Shire Pharmaceuticals for its new manufacturing facility. Vpriv, Shire's (SHGPY) treatment for Gaucher's, had approximately $256 MM in annual sales (growth of $113 MM over previous year). Sales of Cerezyme (by Genzyme, a subsidiary of Sanofi (NYSE:SNY)) were 441 MM Euros for 2011, and per the form 20-F:

"Genzyme communicated at the end of 2011 that, given current productivity and progress in the manufacturing recovery, we expect an improving supply outlook as the year progresses. We have begun communicating with the U.S. Gaucher community to inform them that, beginning in February 2012, current patients in the U.S. can be returned to normal dosing"

Due to these previous supply disruptions, and the successful switchover trial run by Protalix, it is reasonable to expect Protalix and Shire both to capture some of this market, as well as compete for new patients. In addition, certain patients may tolerate Protalix's plant-based protein better, so physicians may switch patients who are having infusion or immunogenicity issues. However, a look at the product labeling of Elelyso shows many of the same side effects as the others. One of the advantages though, and investment reasons of Protalix's ProCellEx expression system is production cost. The platform allows recombinant proteins such as Elelyso to be produced at far lower cost, preserving profit margins. Reflecting this advantage, Pfizer and Protalix plan on pricing the drug 25% below the competition (see press release). How this plays out with payors remains to be seen, though.

Recently, Ritu Baral (analyst at Canaccord Genuity), said,

"We see good chance of May 2012 tali US approval, Q2/12 US launch, mid--2012 EU approval. We think PLX's taliglucerase (tali) will be approved on its May 1 PDUFA date and may get ~15% of the $1.2B+ WW Gaucher's market, with an ex-US competitive pricing focus given resolution of the Gaucher's ERT shortage."

Pipeline ˗ Having focused nearly all of its resources on the lead program, Protalix's pipeline is thin. Candidates for autoimmune disorders (anti-TNF fusion protein), and Fabry's Disease are years away from the market, at a minimum. However, with revenues and milestone payments from Pfizer, Protalix should be able to advance additional therapies into the clinic and begin building a biologic/biosimilar franchise.

Financials ˗ With FDA approval secured, Pfizer now owes PLX a milestone payment of $25 MM. Another $25 MM milestone payment is due from Pfizer when the drug receives marketing authorization from the EMA (relatively soon, hopefully). With cash and cash equivalents of ~$27 MM (not including the $25 MM milestone for FDA approval) as of the most recent quarter, Protalix appears to have the financial resources necessary for the launch without an immediate capital raise.

Conclusion and Future Direction ˗ Now that Protalix has successfully received approval to market its first drug, a key hurdle for the plant cell expression platform (ProCellEx), the difficult task of selling the drug in a market with entrenched competitors remains. Market penetration represents the key driver of the stock in the near term. Over the long term, I believe Protalix will begin to build a recombinant, orphan drug franchise around the ProCellEx platform and continue to increase shareholder value. However, with a market capitalization of ~$500-600 MM, and the worldwide Gaucher's market estimated at ~$1.25 BB, valuation questions remain. Although we haven't seen a full trading day with Elelyso approved, the next few days are sure to be volatile.

Disclosure: I am long PLX.

Additional disclosure: I wrote covered calls on my position, so I am short the May 10 and May 12.5 strikes.