Why Protalix BioTherapeutics Shares Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of biopharmaceutical company Protalix BioTherapeutics (AMEX: PLX  ) soared as much as 24% earlier in the trading session after the company received favorable news from the Food and Drug Administration.

So what: Protalix and development and marketing partner Pfizer (NYSE: PFE  ) yesterday evening announced the approval of Elelyso as a treatment for Gaucher's disease. Under their collaborative agreement, Protalix retains commercialization rights exclusively in Israel, while Pfizer has commercialization rights elsewhere. Other than Elelyso, there are only two other treatments marketed to treat Gaucher's disease -- Cerezyme by Sanofi (NYSE: SNY  ) (originally developed by Genzyme), and VPRIV, owned by Shire Pharmaceuticals. Protalix plans to market Elelyso in the U.S. at a cost that is 25% cheaper than Cerezyme.

Now what: I'll give Protalix a golf clap for today's approval, and certainly those afflicted with Gaucher's disease have to be thrilled with the new treatment option, but Protalix is one of the worst destructors of shareholder wealth in the biotech sector, and I've never forgotten that. In October 2007, the company priced a secondary offering more than 85% below its previous day's closing price. Even recently, in February 2012, the company priced yet another 4.5 million shares at 14% below the previous day's close. Between the accumulated deficit and the company's penchant for diluting shareholders to death, I'm staying as far away from Protalix as I possibly can.

Craving more input? Start by adding Protalix BioTherapeutics to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On May 02, 2012, at 12:17 PM, gadih01 wrote:

    If you are staying away, you are truly a fool. Taliglucerase is only the tip of the iceberg. Protalix has patented the novel technology for producing recombinant enzymes and molecules in plant cells rather than yeast or animal cells. This means that they can potentially create any biological drug, even if it's original is still under patent, do it easier and cheaper. This FDA approval is historic in the way that it will pave the way for approving more drugs produced in plant cells, under Protalix's patent, and indeed, they have several other multi-billion dollar drugs in the pipeline.

  • Report this Comment On May 02, 2012, at 11:51 PM, TMFUltraLong wrote:

    gadih01,

    I wish you the best of luck with Protalix, but it has shown a propensity to destroy shareholder value through secondary offerings on a regular basis over the past five years. I'm not touching it.

    TMFUltraLong

  • Report this Comment On May 03, 2012, at 10:04 AM, sfearnot wrote:

    It would be useful to know how PLX used the funds it obtained through the secondary offerings and how that might have contributed to the company's long-term health and, therefore, to long-term shareholder value. Had PLX not used the funds as it did, how might that have affected shareholder value? Finally, had PLX not made the secondary offerings, what would its fund-raising alternatives have been?

  • Report this Comment On May 03, 2012, at 8:43 PM, Koel2009 wrote:

    This is all nice, but you are forgetting the History behind those share offerings.

    Lets start at the beginning. Since around 2004 Protalix was traded in the Israeli stock exchange through its main shareholder Bio-Cell. Back Protalix's market value was estimated in around 40 millions dollars.

    At the end of 2006, Protalix was merged into the market shell Orthodontix, back then if I remember correctly only 1% of the shares were floating shares, and this resulted, eventually, in a unrealistic pricing at the time of about 3 billion dollars market value.

    At the same time (Year 2006), Bio-Cell, main shareholder in Protalix, was traded in values which reflected to Protalix a market value of around 100-150 million dollars. That was the real quote for Protalix. No one expected it to trade for 3 billion dollars.

    Soon enough the company went to issue shares to finance its R&D. Company prices ranged from about 400 mil $ to 1000 mil $.

    eventually shares were issued for around 350 mil$, 5$ per share. disappointment? obviously. wealth destruction? absolutely not! from a 40mil company in 2004 it rose to 330mil$ 3-4 years after.

    Lets move a bit forward on the timeline and check the second share issue for 5.25$ which happened in February 2012. This came right after the FDA rejected the company's application for the drug, and they had to get more finance until the next decision, which resulted in an approval luckily for us.

    Today PLX is traded for around 600 mil $$ market value.

    So what did we have here? Yes, as in many other cases we haven't got the optimal IPO, Yes, we took a big risk in holding a new dream drug company, YES, we have been diluted if we invested on the first 5$ share offering. But eventually, we have reached the most important finish line without loosing our investment and have a good strong and competitive base to grow our investment.

    600 mil$$ market value is still 15 times more than it was in 2004, and looks promising.

    Good luck

    P.S. on the rough days of the 2008 crisis the stock was traded for around 1$, if you were smart enough to buy back then you cold have arrived that same first finish line with a lot different perspective for "wealth destruction"

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