Protalix - is it all about the timing?

Why would an insider be selling shares now, of all times?

Among the shares in Israeli companies in my portfolio tracked by "Globes", Protalix Biotherapeutics Inc. (AMEX:PLX) can be expected to attract the most attention over the coming weeks. It is a rare situation in our area - a biotech company that grew from an Office of the Chief Scientist incubator to reach a market cap of $500 million, when it is on the verge of completing a clinical trial for a drug aimed at a market of over $1 billion in annual sales.

In the next few days, the last patient will complete the administration of the Gaucher disease drug, and the company said that in October it will report the results. At the same time, the company is handing the US Food and Drug Administration (FDA), in stages, the application of authorization of the drug, since it gained FDA fast track designation.

Something else that is interesting is that in about two weeks, on September 15, management will make a presentation to the capital market in the Tel Aviv Stock Exchange (TASE) building in Tel Aviv, and I wonder if that invitation is not a broad hint to its intention to publish the results in the next few days that is, before the presentation, assuming that in the course of that presentation the results will be presented.

Currently, the only drug on the market belongs to pharmaceutical giant Genzyme (Nasdaq: GENZ), which was forced to temporarily halt production following contamination at its plant in Allston Landing, near Boston, and there is concern about shortages in the next two months.

Based on processes of the FDA, and its European counterpart, the European Medicines Agency (EMEA), and recent announcements by Genzyme itself, it appears that the shortage will be more severe than first thought, which should bring Protalix's medicine to the market much quicker than it first appeared, a few weeks ago. (That is, if the clinical trial does end in the next few days, with complete success.)

On Friday, for example, Genzyme reported that EMEA inspectors conducted checks in August at the plant where the contamination was found, and where the production is supposed to restart. The investigators requested answers within two weeks to deficiencies which they found, which were not spelled out specifically.

Goldman Sachs, which has a "Sell" recommendation on Genzyme shares, wrote this week that it appears that the contamination problems have not been resolved, and that in their opinion, even if the FDA will authorize the restarting of production, as Genzyme plans, in about two months the EMEA is liable to temporarily halt sales of the drug in Europe, so long as the problems it raised have not been resolved.

In Goldman Sachs's opinion, such a move can make the shortage bigger, and prompt patients to switch to drugs that are toward the end of their clinical trial process namely, the drugs of Protalix and of Britain's Shire plc.

Regarding trading in Protalix shares, for over a month now, the trade has been dominated by Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) vice chairman Dr. Phillip Frost, one of the largest investors in Protalix. Frost initiated its listing in the US, but does not hold a formal position in the company. For reasons which no one can explain, he is selling tens of thousands, and sometimes hundreds of thousands, of shares on a daily basis. He is careful not to sell below $6 per share.

Within 1-2 days, he will reach a level below 10%, compared with a 13% stake which he held a month ago, and there are those who wonder if he will stop selling then.

In any case, if and when he reaches below 10%, he will switch from having to report his moves on a daily basis to reporting on a monthly basis. Shareholders holding more than 10% have to report on a daily basis. If he falls below a 5% stake, he won't have to report at all.

The obvious question in light of these moves is clearly why a professional like Dr. Phillip Frost is selling so many shares, precisely on the eve of the drug's approval, when at the beginning of its journey as a public company he wouldn't sell even half a share, even at prices eight times higher. But I also ask myself how high the shares would be today, if Frost wasn't selling. In any case, I very much hope that we don't get the answer to the question of why he is selling when the trial's results are published.

Published by Globes [online], Israel business news - - on September 1, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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