Benzinga | May 30, 2021 07:21AM EDT

PLX: 1Q:21 Results & Next Steps

By John Vandermosten, CFA

NYSE:PLX

READ THE FULL PLX RESEARCH REPORT

First Quarter Financial and Operational Review

Protalix Biotherapeutics, Inc. (NYSE:PLX) announced its 1Q:21 financial and operational results in a May 14, 2021 press release and filing of Form 10-Q. The reports were followed by a conference call that morning which discussed recent achievements and the April 27th receipt of a complete response letter by the FDA for pegunigalsidase alfa (PRX-102). Key events year to date include entering into an exclusive partnership with SarcoMed to develop inhalable alidornase alfa in pulmonary sarcoidosis and related respiratory diseases, topline results from BRIGHT Phase III trial of PRX-102, raise of approximately $40 million gross through a public offer and receipt of a CRL for PRX-102 from the FDA.

In the financial sphere, Protalix generated revenues of $11.3 million in 1Q:21 compared to revenue of $21.6 million in the prior year period. This resulted in net loss of ($5.48) million versus income of $1.67 million in 1Q:20.

Financial results for the quarter ending March 31, 2021, compared to the quarter ending March 31, 2020:

Revenues were $11.3 million, down 48% from $21.6 million; sales from goods declined 10%, from $5.0 million to $4.5 million as decrease in Brazilian sales were offset by an increase in sales of Elelyso to Pfizer; revenues from license and R&D services declined 59% from $16.6 million to $6.8 million as revenues tied to progress of clinical trials ceased with the completion of the trials;

Research and development expenses declined to $7.12 million from $10.34 million, a 31% decline primarily due to completion of two out of three Phase III clinical trials of PRX-102 and reduced costs for the BALANCE study;

Selling, general and administrative expenses were largely flat at $3.14 million vs $3.19 million;

Financial expenses were $2.16 million vs $3.23 million, declining with a decrease in expenses related to Protalix' outstanding convertible notes;

Net loss was ($5.48) million vs net income of $1.67 million, or ($0.14) per share versus $0.10 per share;

Cash and equivalents balance including short-term bank deposits on March 31, 2021 totaled $70.4 million versus $36.6 in the prior year period. Cash burn was ($10.2) million, offset by $42.1 million in net financing cash flows generated from common stock and warrant issuance. The strong balance sheet is sufficient to satisfy the $57.9 principal amount outstanding on the convertible notes due in November 2021.

Following the quarter, Protalix and Chiesi signed a binding term sheet on May 13, 2021 to supply Protalix with near-term capital. Chiesi agreed to make payment of $10 million before end of 2Q:21 in exchange for $25 million reduction in a longer term regulatory milestone payment in the Chiesi EX-US agreement.

CRL Issued for PRX-102

Following the anticipated April 27th target action date for its investigational candidate, Protalix announced that the FDA had issued a Complete Response Letter (CRL) related to the submission of PRX-102.1 Protalix and Chiesi Global Rare Disease had submitted the associated Biologics License Application (BLA) for the PEGylated enzyme and received acceptance of receipt in August 2020. Priority review was granted which normally provides for a six month appraisal of the BLA. Initially, the FDA issued a target action date of January 27, 2021, but in late November extended the date to April 27.

An ongoing outstanding item related to PRX-102 approval has been the required inspection for Protalix' manufacturing facility and that of a third party that performs fill and finish processes. Due to pandemic-related travel restrictions, inspections have been delayed, especially those performed overseas. Prior to the issuance of the CRL, it had been unclear if the agency would temporarily waive the inspection due to the unmet need for Fabry patients and the agency's backlog on account of the pandemic.

In a follow up press release on April 28th, Protalix provided additional details on the contents of the CRL. The FDA did not raise any issues related to the safety or efficacy of the drug, but rather attributed the unfortunate letter to its inability to conduct an on-site inspection for the manufacturing facility in Israel and ongoing review of the third-party facility in Europe.

Protalix' April 28th communication indicated that primary competitor Fabrazyme was recently converted to full approval, which, for nearly 20 years, was approved based on surrogate endpoints. The change is important as it may alter PRX-102's priority review designation a status granted to drugs that offer major advances in treatment or provide a treatment where no adequate therapy exists. Priority review is provided to drug candidates that show evidence of significant improvements in safety or effectiveness when compared to standard of care. Now that Fabrazyme is fully approved, PRX-102 may no longer be eligible for expedited status, which could raise the hurdle required for approval. Despite this, we believe that the evidence presented so far strongly supports the approval of PRX-102.

Next Steps

Following the issuance of a CRL, there are several steps that are common for all candidates. The sponsor has 90 days following the issuance of a CRL to schedule a Type A meeting with the FDA to cover any questions related to the letter. When the sponsor makes the request, the FDA has 30 days to hold the meeting, after which notes from the gathering will be provided. Explained in the CRL and clarified in the meeting, the FDA outlines the steps needed to address the discrepancies presented. In general, these could include additional trials, further questions, bridging studies among other needs. When the requested deliverables are ready, the sponsor may then resubmit the application which will then be considered a Class 1 or Class 2 resubmission. A Class 1 resubmission offers a two month turnaround time and generally deals with simpler issues such as labeling, stability and safety updates, discussion of post-marketing requirements, assay validation data, minor reanalysis, final release testing or other minor issues. A Class 2 resubmission is any item that does not fall under Class 1 and/or requires presentation to an advisory committee and requires a six month turnaround time.

Based on our reading of the press release, it appears that the only discrepancies that exist are related to FDA inspections. Solving the discrepancies appears to be outside of the influence of Protalix and in our opinion not a justification for a CRL. We have noted that the FDA appears to have insufficient resources to meet its mission according to the timelines and performance benchmarks required by the Prescription Drug User Fee Act (PDUFA). Given these limitations, the agency appears to be forced to issue a CRL when it is unable to comply with the requirements for approval.

Normally, we anticipate a several month delay to the approval process when a CRL is issued. In this case it appears that addressing the defect relies on the FDA performing an on-site visit. Assuming that the inspection could take place in the next two months, followed by a resubmission the subsequent month and classification as a Class 1 resubmission, there is a minimum of five to six months before an approval could be granted. This timeline could be extended with a longer wait for an inspection and a Class 2 resubmission which could extend the timeline up to a year. We expect further clarity on this matter following the notes from an anticipated Type A meeting.

Milestones

BRIDGE Final results 4Q:20

Partnership with Sarcomed for PRX-110 in respiratory disease February 2021

BRIGHT Top line results February 2021

PRX-102 Target Action Date April 27, 2021

PRX-102 CRL Announced April 28, 2021

Receipt of notes from FDA regarding CRL May 2021

BALANCE Interim results 2Q:21

Request Type A meeting regarding PRX-102 July 2021

Attend Type A meeting regarding PRX-102 August 2021

$58 million in convertible notes due November 2021

BALANCE Final results 1H:22

EMA submission of PRX-102 2022 following BALANCE Final results

EMA approval and EU commercialization of PRX-102 1H:23

Valuation

We adjust our valuation to reflect the receipt of the CRL for PRX-102. While the details of the FDA's letter were not made public, we feel that there is only a small increase in risk to approval. The focus of the letter on the inability to conduct an on-site inspection rather than concerns over drug safety or efficacy justifies only a minor adjustment to our probability of success estimate. Our updated forecasts approximate an 80% likelihood of ultimate commercialization, down from 85% previously. We also forecast a one year delay in US sales based to 2H:22 on the anticipated duration of the resubmission as we discuss in an earlier section of this report. We do not change our estimates for the European approval timeline or sales trajectory.

Summary

We were unpleasantly surprised by the issuance of a complete response letter by the FDA and even more taken aback by the full approval of Fabrazyme which apparently annulled PRX-102's previous grant of accelerated approval. Based on the details provided by management, it appears that the inability of the FDA to perform an onsite inspection was the primary factor leading to the issuance of the complete response letter. The FDA has made it clear that it is behind on its audits and has issued a press release and document detailing the agency's inspection status and priorities during the pandemic. We anticipate that Protalix will follow the normal pathway travelled in response to a CRL. It will request and be granted a Type A meeting to discuss the discrepancies related to the submission, all required deliverables will be addressed and a resubmission will take place. We estimate this process will take approximately one year from the issuance of the CRL. While this is an unfortunate delay for the company, investors and patients, we believe that Protalix has sufficient funds and expertise along with the help of Chiesi to address the setback. We are now waiting for Protalix to request, attend and provide feedback on the anticipated Type A meeting, after which we will update our estimates accordingly.

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1. Also referred to by its generic name, pegunigalsidase alfa.

2. Protalix Corporate Presentation March 2021