Recombinant therapeutic protein developer, Protalix BioTherapeutics, Inc. (NYSE:PLX) reported Q2 2023 revenues of $35.08 million, representing a 300.72% (YoY) increase. It beat Wall Street estimates by $24.85 million. The company’s earnings per share stood at $0.21 beating forecasts by $0.25 even as the stock rose 82.49% (YoY) on improved fundamentals.
Thesis
I expect Elfabrio to be added as a treatment for Fabry disease by various insurance carriers after Protalix BioTherapeutics announced two approvals for the marketing of Elfabrio by the European Commission and the Biologics License Application (BLA) by the US FDA in May 2023. There was also a recent recommendation by the National Institute for Health and Care Excellence (NICE) for Elfabrio as a long-term treatment for Fabry disease in adults in both England and Wales. This recommendation adds the UK’s National Health Service (NHS) as a potential customer further expanding Elfabrio’s commercialization target into 2024.
Protalix BioTherapeutics whose current attention is on the manufacture of Elfabrio (to be commercialized by its business partner Chiesi Farmaceutici) announced that the US FDA had approved Elfabrio for the treatment of Fabry disease in adults. Speaking during the announcement, Protalix’s President and CEO stated:
This approval is a testament to the dedication of the Protalix and Chiesi teams to deliver this much-needed new therapeutic option to patients in need. The totality of clinical data suggests that ELFABRIO has the potential to be a long-lasting therapy. Together with Chiesi, we are grateful to all of the patients and investigators and their staff members who participated in our clinical trial programs and remain committed to bringing ELFABRIO to patients with Fabry disease.”
Elfabrio with its active ingredient pegunigalsidase alfa-iwxj operates as an enzyme replacement therapy (ERT) and is intended to be a plant cell-culture-expressed protein. It is also a chemically modified version of the recombinant alpha-galactosidase- A protein. Patients suffering from Fabry disease inherit a deficiency of the alpha-galactosidase- A protein enzyme that breaks down Gb3/ fats causing its abnormal accumulation in the blood/ blood vessel walls. The long-term implications are organ failure, especially in the kidneys, heart, and the overall cerebrovascular system.
Approval Implications
As we know, proper accessibility of rare disease treatments provides significant value to pharmaceutical companies as well as society at large. Therefore, approval of Elfabrio for the treatment of Fabry disease in both Europe and the US through the FDA will mark an increase in the company’s profitability and revenue generation.
Firstly, Protalix gets revenue mainly from the sale of goods, licenses, and R&D services. The company increased its sale of goods by 62.3% (YoY) in the six months ended on June 30, 2023, to $20.141 million from $12.41 million realized in the same period in 2022. However, revenues from license and R&D services were the highest earners with an increase of more than 97% (YoY) at $24.522 million.
In my view, the commercialization of Elfabrio in the US will likely attract the attention of health insurance companies such as UnitedHealth Group, Aetna, and even Kaiser. The US FDA approved Fabrazyme by Sanofi in 2003, making it the first approved treatment for adult and pediatric patients with Fabry disease. On its part, Sanofi has been developing its relationship with UnitedHealth Group in fields such as diabetes but is yet to collaborate on handling Fabry’s disease. I am not implying that the collaboration will be imminent since there are various aspects to be considered such as the prevalence figures, time of diagnosing the disease, and the effect of the genetic treatment technology to be used. Still, the uptake of this treatment option is a reality since more companies are now being approved in Europe and the US for Fabry disease treatment.
Elfabrio was also recommended by the National Institute for Health and Care Excellence for the treatment of Fabry disease among adults. This recommendation is a stepping stone towards opening the way for Elfabrio’s adoption in the United Kingdom through the National Health Service. This adoption is vital considering few companies have their drugs approved for Fabry disease treatment.
Relative treatment pricing
Amicus Therapeutics (FOLD) whose Galafold drug, a treatment for Fabry disease approved in 2018 announced a revenue of $94.3 million in the three months ending on June 30, 2023, and $180.4 million in the six months ending on June 30, 2023. Incidentally, this was the primary revenue source for the company in the quarter. In FY 2022, Galafold’s revenue stood at $329 million. The company projected double-digit revenue growth of Galafold in FY 2023 at 12-17% at CER. Amicus has priced its Galafold drug at about $315,000 per year which I think ranges from an average standpoint considering it is administered orally or in tablet form.
For Sanofi (SNY), the net sales attributed to Fabrazyme in Q2 2023 stood at €250 million representing a net increase of 9.7% (YoY) and a surge of 10.7% in H1 2023 at€496 million. Sanofi prices its Fabrazyme drug at about $290,000 and it was the fourth best-selling drug in the quarter. The increased sales were a result of new patient accruals and growth in North America, Europe, and other parts of the world including China. Fabrazyme’s lower pricing is slightly attributed to its IV administration which is similar to PRX-102 by Chiesi and Protalix.
In my estimation, Protalix will likely price Elfabrio at an annual average cost of $300,000 to remain in tandem with the industry average.
Cash available
As of Q2 2023, Protalix’s cash position stood at $48.2 million representing an increase of 46.06% (QoQ). Protalix generated about $2 million from operations for the 6 months ended on June 30, 2023. The cash flow statement also showed that in the trailing twelve months (TTM by quarter), the company used up $13.2 million in operations. This decline was caused by the decrease in contract liability that also reduced the net income for the six months that ended on June 30, 2023, to stand at $16.2 million. While the $2.0 million net cash generated from operations may be low, it indicated an increase of more than 150% (YoY) from $13.2 million used up in operations in the six months ending on June 30, 2022.
Net cash generated by investing activities for the 6 months ending on June 30, 2023, stood at $4.5 million. These cash proceeds emanated from the sale of short-term deposits. The company has also in the past raised money by selling common stock under its ATM program. In H1 2023, financing generated $24.7 million for Protalix, up 55.35% (YoY) from $15.9 million generated in H1 2022.
Valuation and market dynamics
Protalix’s price-to-earnings ratio (TTM) stood at 18.37 against the industry average of 30.48. This represents a difference of 39.71%. I believe that this stock is highly undervalued, especially with the stock trading slightly under $2.
In regards to the prevalence, Fabry disease has been described as the “second-most frequent storage disorder with 1 case per 40,000 males). The global market size of Fabry disease treatment as of 2022 stood at $1.877 billion. By 2030, it is projected to reach $3.3 billion growing at a CAGR of 7.4% in the forecast period.
Risks
While Protalix’s total debt stands at $26 million against a cash balance of $48 million, it has a total principal amount of $20.42 million of its 2024 notes outstanding. Payment of this principal in 2024 will force the company to search for additional funding.
Further, the commercialization efforts of Elfabrio will necessitate additional R&D expenses. The expected cash burn into 2024 means that Protalix’s cash reserves will only be available until June 2024. Also, as of June 30, 2023, the number of amount of shares of common stock available for Protalix is worth about $6.4 million (under the 2023 ATM sale agreement).
Protalix’s development in the line of Elfabrio is tied to the drug’s commercialization efforts by Chiesi. Any delay or ineffective performance from Chiesi will affect product rollout and revenue generation.
At the moment, taliglucerase alfa under the brand name Elelyso remains Protalix’s main revenue source- from a product development and commercialization perspective. However, since its approval by the FDA, Protalix signed an agreement that transferred all of Elelyso’s marketing rights to Pfizer. While Pfizer is responsible for all global expenses of the drug it is still entitled to all revenues from the sale of the drug. Under the Pfizer agreement, Protalix is only entitled to Elelyso’s revenues from Brazil where it covers all the drug’s expenses.
Bottom Line
I expect Protalix to thrive after the commencement of the commercialization of Elfabrio. The prevalence of Fabry disease and the growing market size of the disease treatment options means significant value will be placed on Elfabrio as a potential alternative. Additionally, Protalix has greater leverage with Elfabrio since it is handling the manufacturing part of the drug substance which is essential in its agreement with Chiesi. I believe this stock is a hold pending the successful commercialization of the drug post FDA approval.
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