prolor biotech, inc. outperform · 2014-03-01 · prolor biotech, inc. initiating with outperform:...
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EQUITY RESEARCH
INITIATION OF COVERAGE
Oppenheimer & Co Inc. 85 Broad Street, New York, NY 10004 Tel: 800-221-5588 Fax: 212-667-8229
Boris Peaker, Ph.D., CFA212 [email protected]
Matthew Pommer, [email protected]
Oppenheimer & Co. Inc. does and seeks to do business with companies coveredin its research reports. As a result, investors should be aware that the firm mayhave a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investmentdecision. See "Important Disclosures and Certifications" section at the end ofthis report for important disclosures, including potential conflicts of interest. See"Price Target Calculation" and "Key Risks to Price Target" sections at the end ofthis report, where applicable.
Stock Price Performance Company DescriptionPROLOR is an innovativebiopharmaceutical company developingnew versions of therapeutic proteins.The leading asset is a long-actingversion of human growth hormoneincorporating carboxyl terminal peptidetechnology to increase its lifespan.Versions of Factor VIIa, Factor IX, andanti-obesity peptide oxyntomodulin arealso being developed.
August 29, 2012 HEALTHCARE/EMERGING BIOTECHNOLOGY
Stock Rating:
OUTPERFORM12-18 mo. Price Target $7.00PBTH - NYSE $4.69
3-5 Yr. EPS Gr. Rate NM52-Wk Range $6.69-$3.11Shares Outstanding 63.4MFloat 45.3MMarket Capitalization $297.4MAvg. Daily Trading Volume 63,628Dividend/Div Yield NM/NMBook Value $0.67Fiscal Year Ends Dec2012E ROE NMLT Debt $0.0MPreferred NMCommon Equity $43MConvertible Available Yes
EPSDiluted Q1 Q2 Q3 Q4 Year Mult.
2011A (0.08) (0.07) (0.06) (0.09) (0.29) NM2012E (0.09)A (0.05)A (0.08) (0.09) (0.31) NM2013E (0.09) (0.09) (0.09) (0.08) (0.36) NM
Prolor Biotech, Inc.Initiating with Outperform: A Lasting Opportunity inTherapeutic ProteinsSUMMARY
We are initiating coverage of PROLOR Biotech with an Outperform rating and $7 pricetarget. PROLOR is a biopharmaceutical company developing proprietary long-actingversions of already approved therapeutics. PROLOR's leading asset is hGH-CTP, along-acting version of human growth hormone (HGH). A Phase III trial of hGH-CTP inadults is expected to start by year-end. We highlight that if approved, hGH-CTP wouldbe the first long-acting HGH on the market. In addition, PROLOR has exclusive rightsto CTP technology for all but four proteins. Merck developed and now sells a fertilitydrug using CTP modification, which we believe validates this technology. In our view,PROLOR remains still largely overlooked despite multiple 12-18 month catalysts.
KEY POINTS
■ We believe PROLOR's hGH-CTP asset could offer a clear advantage to availabletherapies in an established $2.5-3.0B market. Results are expected by YE13 inboth the Phase II pediatric study and Phase III study in adults.
■ Factor VIIa-CTP is a long-acting version of Factor VIIa used for the treatment ofhemophilia. Preclinical results suggest that the candidate can potentially reducethe severity and duration of bleeding events as well as dosing frequency. Weexpect this candidate to advance into Phase II testing in 1H13.
■ Factor IX is commonly used to treat hemophilia B. In addition to its Factor VIIaprogram, PROLOR is using its CTP technology to develop a longer acting FactorIX called Factor IX-CTP. We believe that PROLOR's Factor VIIa and Factor IXcandidates represent upside not currently included in our valuation.
■ PROLOR is developing a long-acting version of oxyntomodulin using reversiblePEGylation technology. We believe that preclinical data are encouraging andexpect commencement of a Phase I trial in 1H13. We believe PROLOR couldseek to partner this candidate given the large requisite trials. We do not currentlyincorporate this drug into our valuation of PROLOR.
■ We derive our price target for PROLOR through NPV analysis of only its leadingasset, hGH-CTP. Our valuation assumes PROLOR partners hGH-CTP following asuccessful Phase III trial and captures 40% of the market. We do not assign valueto PROLOR's technology or other candidates in development.
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Table Of Contents
Page
Investment Thesis 3
Key Milestones 4
Valuation 5
Key Risks to Our Thesis and Price Target 7
Financial Overview and Projections 8
CTP Technology Overview 11
Human Growth Hormone (hGH) Program 11
Factor VIIa-CTP (MOD-5017) in Hemophilia 18
Factor IX-CTP (MOD-9017) in Hemophilia 20
Oxyntomodulin (MOD-6030) in Diabetes Type II & Obesity 22
Other Development Programs 25
Key Licensing Agreements 25
Management Biography 27
Prolor Biotech, Inc.
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Investment Thesis PROLOR Biotech is a development-stage biopharmaceutical company with a therapeutic
focus on endocrinology, hemophilia, and obesity. PROLOR’s most advanced drug
candidate is a long-acting version of human growth hormone (hGH) called hGH-CTP. The
company expects to commence a Phase III study of hGH-CTP by YE12 for adult growth
hormone deficiency (GHD). PROLOR is also evaluating hGH-CTP in an ongoing Phase II
study for GHD in children. If successful, hGH-CTP could enter the $2.5- 3.0B hGH
replacement market and replace once-daily hGH injection products with once-weekly
injections of hGH-CTP. Reducing the number of painful injections would likely improve
patient compliance, clinical outcomes, and lower costs to payers. We believe hGH-CTP
has the potential to take significant share in the hGH market.
PROLOR’s technology platforms allow it to develop drugs designed to increase the
lifespan of proteins and peptides in the body. The company has certain exclusive
worldwide rights to CTP, a short, naturally occurring peptide that can be used to slow the
removal of a therapeutic protein from the body. The company’s hGH-CTP and hemophilia
candidates incorporate CTP while its obesity candidate uses a reversible PEGylation
technology. Below we highlight the key strengths of each drug in development.
Growth Hormone Deficiency - hGH-CTP
The results of a 39-patient Phase II study of hGH-CTP had no unexpected adverse
events, and data showed excellent safety and tolerability. The study confirmed the
potential of hGH-CTP to maintain efficacy while reducing injection frequency to once-
weekly or twice-monthly. PROLOR expects to initiate a 120-150 patient Phase III study to
evaluate 6 months efficacy and 12 months safety by YE12. hGH-CTP received orphan
designation in adult and pediatric GH deficiency, and as such only a single Phase III study
is required to gain approval for each indication.
Hemophilia - Factor VIIa & Factor IX
PROLOR is developing Factor VIIa-CTP and Factor IX-CTP, both long-acting versions of
Factor VIIa and Factor IX, respectively, for the treatment of hemophilia. Both candidates
have encouraging preclinical data showing increased half-life and drug exposure
compared to the unmodified protein. As a result, bleeding events were shorter and less
blood was lost. Hemophilia is a complex disease that can be life threatening. PROLOR
expects to advance Factor VIIa-CTP to pre-IND submission level in 2012 and initiate a
Phase II clinical study for hemophilia in 1H13.
Obesity & Diabetes Type II - OXM-RPEG
OXM-RPEG is a long-acting form of oxyntomodulin, a naturally occurring peptide strongly
implicated in satiation (the feeling of being full after eating). Using its reversible
PEGylation (RevPEG), PROLOR has extended the half-life of oxyntomodulin in its OXM-
RPEG drug candidate. With promising preclinical data showing the potential for significant
weight loss using twice-weekly injections, PROLOR expects to advance the candidate to
pre-IND submission level in 4Q12 and commence a Phase I study for type II diabetes in
1H13. Given the trial sizes and costs required to advance an obesity drug candidate,
PROLOR anticipates it will seek a partner to further develop its anti-obesity candidate.
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Exhibit 1: PROLOR Biotech Pipeline
Indication Product Preclinical Phase I Phase II Phase III
Growth
DisordershGH-CTP
HemophiliaFactor VIIa-CTP
………………..
Factor IX-CTP
Diabetes TII /
Obesity
GLP1/Glucagon
dual receptor
agonist.
1/week injection
2/week injection
…...…………...………...…..
1/week injection
1/week injection
Source: Company reports; Oppenheimer & Co.
Key Milestones
Exhibit 2: PROLOR Biotech Key Milestones
Date Stage Milestone
hGH-CTP (MOD-4023) in Growth Hormone Deficiency
YE12 Phase III Start Phase III study
YE13 Phase III Results of Phase III study in hGH-CTP in adults with GHD
YE13 Phase II Results of Phase II study of hGH-CTP in children with GHD
OXM-RPEG (MOD-6030) in Diabetes Type II
4Q12 Preclinical Complete pre-IND studies, submit IND
1H13 Phase I Initiate Phase I study
Factor VIIa-CTP (MOD-9017) in Hemophilia
4Q12 Preclinical Complete pre-IND studies, submit IND
1H13 Phase II Initiate Phase II study of Factor VIIa-CTP in hemophilia
Source: Company reports, clinicaltrials.gov; Oppenheimer & Co. estimates.
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Valuation
Initiating with Outperform Rating and $7 Price Target
Our valuation of PROLOR Biotech is based on NPV analysis of only its leading drug
candidate, hGH-CTP, for the treatment of GH deficiency in children and adults. We do not
explicitly model the pediatric and adult patient population because that is likely to lead to
errors given the range of doses and duration of GH treatment, particularly in adults. As
such, we assumed that hGH-CTP will capture a 40% market share of the existing hGH
market at peak and be priced in parity to current hGH products. We estimate the hGH
market to grow at a 2% CAGR from the $2.75B current market size and for PROLOR to
maintain exclusivity for hGH-CTP through patent expiry in 2032. Additionally, given the
large commercial infrastructure requirements for hGH-CTP, we believe that the best
commercial strategy for PROLOR is to partner hGH-CTP upon completion of the Phase III
study (Exhibit 3). From the competitive perspective, we anticipate that hGH biosimilars will
continue to enter the market, but we do not believe that these new entrants will impact
PROLOR’s hGH-CTP due to its dosing convenience advantage. Applying a 70%
probability of success for hGH-CTP, a 15% discount rate and a ~71M fully diluted share
count in 3Q13, we arrive at our 12-month price target of $7/share.
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Exhibit 3: hGH-CTP NPV Model
Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Total hGH WW Market Size ($MM) $2,750 $2,805 $2,861 $2,918 $2,977 $3,036 $3,097 $3,159 $3,222 $3,287 $3,352 $3,419 $3,488 $3,557 $3,629 $3,701 $3,775 $3,851 $3,928 $4,006 $4,086
hGH-CTP Market Share 5% 10% 20% 30% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40%
hGH-CTP Total WW GHD Revenue ($MM) $146 $298 $607 $929 $1,264 $1,289 $1,315 $1,341 $1,368 $1,395 $1,423 $1,451 $1,480 $1,510 $1,540 $1,571 $1,602 $1,635
Royalty to PROLOR (30%) $44 $89 $182 $279 $379 $387 $394 $402 $410 $419 $427 $435 $444 $453 $462 $471 $481 $490
Expenses
R&D Expenses $15 $20 $24 $25 $30 $36 $43 $35 $28 $17 $10 $6 $5 $5 $5 $5 $5 $5 $5 $5 $5
Royalty to Washington University $0 $0 $0 $4 $9 $18 $28 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
COGS $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
G&A $3 $4 $6 $10 $10 $12 $12 $13 $13 $13 $14 $14 $14 $15 $15 $15 $16 $16 $16 $17 $17
Sales & Marketing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total expenses $19 $24 $30 $39 $49 $66 $83 $48 $41 $30 $24 $20 $19 $20 $20 $20 $21 $21 $21 $22 $22
Pre-tax cashflow ($MM) -$19 -$24 -$30 $4 $40 $116 $196 $332 $346 $365 $378 $390 $400 $407 $415 $424 $432 $441 $450 $459 $468
Probability of cashflow 100% 100% 100% 100% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70%
Risk-adjusted pre-tax cashflow ($MM) -$19 -$24 -$30 $4 $28 $81 $137 $232 $242 $255 $265 $273 $280 $285 $291 $297 $302 $309 $315 $321 $328
Total Risk-Adjusted Cashflow, pre-tax ($MM) -$19 -$24 -$30 $4 $28 $81 $137 $232 $242 $255 $265 $273 $280 $285 $291 $297 $302 $309 $315 $321 $328
Taxes ($MM) $0 $0 $0 $1 $7 $20 $34 $58 $61 $64 $66 $68 $70 $71 $73 $74 $76 $77 $79 $80 $82
After tax cashflow -$19 -$24 -$30 $3 $21 $61 $103 $174 $182 $192 $199 $205 $210 $214 $218 $350 $356 $364 $372 $378 $386
Discount rate 15%
NPV ($MM) $500
NPV/share $7.15 Source: Oppenheimer & Co. estimates
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Key Risks to Our Thesis and Price Target
There are multiple risks and uncertainties associated with investment in development-
stage biotechnology companies. We recommend investors review PROLOR’s regulatory
filings for the detailed summary of investment risks, and below we highlight the key risks
that relate to our thesis and price target.
Clinical Trial Risk
PROLOR is or will soon be conducting several ongoing clinical studies. There is a risk that
these trials may not meet their endpoint(s), and as such, may not lead to marketing
approval.
Regulatory Risk
PROLOR’s assets will require FDA approval for commercialization in the US and similar
approvals in other geographies. There is risk the company may not successfully achieve
regulatory approval in the US or elsewhere.
Competitive Risk
There are many drugs approved and in development for the treatment of GH deficiency,
hemophilia, and anemia as well as obesity and type II diabetes. As such, PROLOR’s
assets will have to show at least a modest improvement in safety, efficacy, or convenience
to these agents, and there is risk that competitive profiles in clinical trials may not be
achieved.
Changes In Standard Of Care
hGH treatment remains controversial, particularly in adults, as some physicians and
regulators view the indications as largely cosmetic. As such, we believe that if the medical
community revises its view on the risk/benefit of hGH treatment due to safety concerns
and/or other reasons, the WW demand for hGH may be significantly impacted.
Partnership Risk
PROLOR may seek to enter into one or more partnerships with biotechnology companies
for the advancement of its clinical initiatives. There is risk that a disagreement with its
partners, change in control of the partner, or other unanticipated partner developments,
may negatively affect the advancement of PROLOR’s clinical programs.
Reimbursement Risk
Healthcare costs and reimbursement are prominent political items, particularly in light of
the budget deficits in the US and the rest of the world. PROLOR’s hGH-CTP may be
viewed as a cosmetic treatment in many indications, and as such, may be denied
reimbursement.
Liquidity and Small Capitalization
PROLOR Biotech is a small-capitalization (<$500M), unprofitable biotechnology company.
Although the stock is trading around $5/share, we believe that there is a limited market for
PBTH stock at this time, which may lead to volatility.
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Financial Overview and Projections
Balance Sheet. As of June 30, 2012, PROLOR had total cash and equivalents of $42.5M.
This is inclusive of an offering completed in May 2012 of 7.475M shares of common stock
at $5.00/share for net proceeds of $35.0M. PROLOR believes it is sufficiently capitalized
until 2014.
Share Count. PROLOR had 63.4M shares of common stock outstanding at last report on
July 31, 2012. The number of common shares outstanding increased by 7.475M with the
offering in May. PROLOR had a total of 5.5M options (4.3M options exercisable with a
weighted average exercise price of $1.32) and 321K warrants at the end of 2Q12.
Financing History. PROLOR has a history of losses and may require additional financing
until it becomes cash flow positive. The company has $42.5M remaining on a $75M shelf
filed April 6, 2012, following an offering of 7.475M shares at $5/share that generated gross
proceeds of $37.38M. Since going public in May 2007, PROLOR has completed a number
of financings, which are detailed in Exhibit 4.
Exhibit 4: PROLOR Biotech Financing History
Date Amount Details
May 2012 $37.4M Issued 7.475M common shares at $5.00 per share
May 2010 All 1M issued and outstanding Series B shares converted to 2.2M common shares
May 2010 All 800K Series A shares converted to 4M common shares
March 2010 $24.4M Issued 10.4M common shares at $2.35 per share
July 2009 $2M Issued 1M preferred Series B shares to Frost Group; convertibleto 1 for 2 to common
March 2008 $2M Issued 800K preferred convertible Series A shares to Frost Group at $2.50
May 2007 $2M Private sale of 5.5M common shares & 333K warrants to Frost Group
May 2007 $3.4M Issued 2.2M common shares at $1.50/share & 562K warrants at $2.50/share
May 2007 $9.6M Issued 6.4M common shares at $1.50/share & 1.6M warrants at $2.50/share
Source: Company reports..
Ownership. PROLOR insider/stake ownership is significant at approximately 26% of
shares outstanding. PROLOR’s chairman, Phillip Frost, is the largest overall holder of
PROLOR stock (Exhibit 5).
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Exhibit 5: PROLOR Biotech Shareholders
Investor Name % Ownership Total shares
Phillip Frost 20.08% 12,309,935
Menora Mivtachim Life Insurance 4.32% 2,650,000
Jane H Hsiao 3.56% 2,179,856
Vanguard Group 3.10% 1,899,356
Fidelity Management 2.13% 1,304,800
Fuad Fares 1.90% 1,164,905
Perceptive Advisors 1.58% 970,000
Straus Asset Management 1.27% 775,532
Kingdon Capital Management 0.69% 425,000
Millennium Management 0.48% 291,080
Abraham Havron 0.40% 245,643
Migdal Mutual Funds 0.13% 81,683
Steven D Rubin 0.12% 73,086
Clal Finance Mutual Funds Management 0.11% 70,195
Healthcare Value Capital 0.09% 56,965
Jane Street Capital 0.08% 48,194
Morgan Stanley Smith Barney 0.05% 30,560
SagePoint Financial 0.04% 23,930
Croft-Leominster 0.03% 21,000
Merrill Lynch, Pierce, Fenner & Smith 0.03% 20,860
Source: FactSet; Company reports.
Revenue. As a development-stage biopharmaceutical company, PROLOR has not
generated revenues in the past, and we do not project the company to generate significant
revenues in 2012 or 2013. However, we believe that the company may generate revenue
from partnerships/licensing agreements before its assets gain marketing clearance from
the FDA and/or EMA.
Royalties. Under its license agreement with Washington University, PROLOR is required
to pay royalty fees of 1.5% to 5% from net revenues as well as other milestone fees until
the agreement terminates in 2018. These fees include an annual license fee of $30,000
that is payable until the first product generates revenue. Post-commercialization, royalties
owed will be set to $10,000 for the first year and increase by an amount of $10,000 for
each subsequent year of commercialization. If PROLOR were to sub-license the
technology covered by the Washington University agreement, fees of 7.5% to 20% would
apply to sub-licensing payments.
In exchange for funding received from the Israeli Office of the Chief Scientist, PROLOR
will pay 3% of revenues until these royalties to the Chief Scientist reach the amount of the
grants received plus interest at the rate of LIBOR. As of 1Q12, PROLOR has received
grants totaling $5.0M.
With respect to its agreement with Yeda for Reverse PEGylation technology, PROLOR will
pay annual fees of $10,000 until 2015, and $15,000 thereafter as well as a royalty of 3.5%
on sales and 40% on royalties for sublicensees.
Operating Expenses. Operating expenses including R&D and G&A totaled $11.4M and
$3.4M in 2011, respectively. For 2012 we project R&D and G&A expenses of $15.4M and
$3.5M, respectively. The increase in R&D spending projected for 2H12 and into 2013 is
related to the upcoming Phase III study of hGH-CTP and other clinical initiatives. Our
expectations are for R&D to climb again in 2013 to $20M while G&A is projected at $3.7M.
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Taxes. PROLOR Biotech and its subsidiary Modigene Inc. had carry-forward tax losses of
$3.7M at the end of 2011 while PROLOR Ltd. had carry-forward tax losses of $25.3M for
the same period. However, given the uncertainty in recognizing these tax assets, we did
not include them in our NPV model and assumed a flat tax rate of 25% in years of positive
cash flow.
Guidance. Currently PROLOR has not supplied detailed financial guidance. However, the
company anticipates the recent financing to be adequate to complete the Phase III study
of hGH-CTP.
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CTP Technology Overview
PROLOR has an exclusive license to technology developed at Washington University in
St. Louis. This technology is based on a short, naturally occurring peptide that was
discovered while conducting research into the female hormone human chorionic
gonadotropin (hCG). It was found that the two-day life span of hCG in the body is a result
of carboxyl-terminal peptide (CTP). Further investigation revealed CTP could be used to
extend the half-life of various peptides and proteins in the body without increasing toxicity
(Exhibit 6).
Exhibit 6: Carboxyl-Terminal Peptide (CTP) Increases Half-Life
Source: Company reports.
CTP Technology Validation by Merck
PROLOR has exclusive rights to CTP for all but four endocrine proteins: FSH, LH, TSH,
and hCG. These proteins were licensed to a company now owned by Merck. This is
important because Merck now markets a drug branded ELONVA, a follicle-stimulating
hormone (FSH) used as a fertility treatment. ELONVA utilizes the CTP technology and, as
a result, a single ELONVA treatment replaces seven consecutive daily injections. We also
highlight the Phase III ENGAGE trial, which included 1,509 subjects and was the largest
double-blind fertility trial ever conducted. In our view, the approval of ELONVA helps to
validate the potential safety and efficacy of CTP technology. CTP is capable of extending
plasma half-life while maintaining the biological activity of a therapeutic.
Human Growth Hormone (hGH) Program
Overview of Growth Hormone Deficiency (GHD)
Growth hormone (GH) is produced in the pituitary gland by somatotroph cells, which
secrete the polypeptide into the body. The hormone then binds to receptors on liver cells
as well as other cells. After the hormone binds to the target cell, a cascade of events
triggers the secretion of insulin-like growth Factor I (IGF-1), which plays a key role in the
growth of children as well as a role in a variety of functions in the body, such as improving
body composition.
Pediatric Setting Overview
GH deficiency in children can result in short stature. Diagnosis of the disorder is made on
the basis of height, height velocity and bone age. There are a variety of causes for
pediatric GH deficiency. For example, a wide range of congenital conditions resulting from
Prolor Biotech, Inc.
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genetic defects to anatomical difference in the brain can result in deficiency1. Exposure to
radiation and various tumors as well as chronic renal insufficiency and Turner’s syndrome
also can result in GH deficiency. Finally, idiopathic (unknown cause) short stature
represents at least one-third of all children treated with hGH in the US2.
Adult Setting Overview
FDA has approved GH therapy for adults if diagnostic tests indicate low levels of GH, or if
pituitary or hypothalamic disease is found. That said, GH therapy is prescribed to treat a
wide variety of conditions in adults. GH therapy has been studied for regional changes on
body composition such as reducing fat and increasing lean muscle mass. GH is used in a
wide variety of therapies, but has shown no consistent benefit in the treatment of obesity,
osteoporosis, muscular dystrophy, and infertility1.
Non-compliance Is a Major Issue
The treatment of human GH deficiency requires daily subcutaneous injections of
replacement human growth hormone (hGH). Therapy is costly, with the mean annual per-
patient wholesale acquisition cost (WAC) estimated to be ~$20K+ in the pediatric setting3
and a fraction of that in adults. Adding to the cost is non-compliance. One study showed
that 66% of patients were non-compliant and that missing more than one dose a week
significantly (p<0.01) reduced linear growth4. Non-compliance is the result of painful
injections5, long-term treatment
6, and treatment complexity.
7
In our view, hGH-CTP has the potential to significantly improve patient compliance. Key
benefits may include higher linear growth rates, lower payer costs, reduced therapy
duration, and improvements to quality of life measures. In summary, if hGH-CTP can
achieve once-weekly or twice-monthly dose administration with equivalent efficacy and
safety, we believe hGH-CTP stands to take a significant share of the $3B/yr hGH market.
Designing Long-Acting hGH - hGH-CTP (MOD-4023)
Given the significant compliance issues with marketed hGH products, PROLOR designed
a long-acting hGH by adding carboxyl-terminal peptide (CTP) to the coding region of
human growth hormone (hGH) cDNA8. Preclinical data showed significant increases to
bioactivity and prolonged in vivo half-life compared to the original hGH.
We would like to note that there have been several attempts by others to create second-
generation therapeutic proteins with longer half-lives and improved bioactivity using
1 Vance M.L. and Mauras N., Growth Hormone Therapy in Adults and Children. New England Journal
of Medicine (1999) 341: 1206-16. 2 Cuttler L. et al., Short Stature and Growth Hormone Therapy: A National Study of Physician
Recommendation Patterns. Journal of the American Medical Association (1996) 276: 531-7. 3 Lee J.M. et al., Estimated Cost-Effectiveness of Growth Hormone Therapy for Idiopathic Short Stature. Archives of Pediatric and Adolescent Medicine (2006) 160:263-269. 4 Cutfield W.S. et al., Non-Compliance with Growth Hormone Treatment in Children is Common and
Impairs Linear Growth. PLoS One. (2011) 6(1): e16223. 5 Main K.M. et al., Automatic Needle Insertion Diminishes Pain During Growth Hormone Injection.
Acta Paediatr 84: 331-34. 6 Haverkamp F. et al. Observations of Nonadherence to Recombinant Human Growth Hormone
Therapy in Clinical Practice. Clinical Therapy (1995) 30: 307-16. 7 Cromer B.A. and Tarnowski K.J., Noncompliance in Adolescents: A Review. Journal of
Development & Behavioral Pediatrics. (1989) 10: 207-15. 8 Fares F. et al., Designing a Long-Acting Human Growth Hormone (hGH) by Fusing the Carboxyl-
Terminal Peptide of Human Chorionic Gonadotropin β-Subunit to the Coding Sequence of hGH. Endocrinology. (2010) 151(9): 4410-17.
Prolor Biotech, Inc.
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polyethylene glycol (PEG) or crystalline biopharmaceuticals9,
10,
11,
12
. However, it was
found that increasing the amount of PEG would linearly decrease the affinity of hGH for its
receptors, decreasing bioactivity drastically.
Phase I Clinical Study Data Summary
A Phase I study of hGH-CTP was initiated in September 2009 and completed in February
2010. The study was a randomized, double-blinded, placebo-controlled, single-dose,
dose-escalating, single-center trial designed to evaluate the safety, tolerability as well as
the pharmacokinetic and pharmacodynamic properties of hGH-CTP. The study enrolled
24 healthy volunteers who were randomized to receive placebo or one of three doses of
hGH-CTP (4mg, 7mg, or 21mg). The objective of the study was to evaluate safety and
tolerability as well as the potential for efficacy through measurements of insulin-like growth
factor (IGF-1), the primary indicator of hGH activity. Results showed PROLOR’s long-
acting hGH-CTP appears to be safe and has the potential to replace daily injections of
hGH with once-weekly or twice-monthly injections of hGH-CTP. Based on the results of its
Phase I study, PROLOR initiated a Phase II study in July of 2010.
Phase II Clinical Study in Adults - Data Summary
In August 2011 PROLOR announced top-line results from a Phase II study of hGH-CTP.
This Phase II study was a randomized open-label, multicenter study in adults with GH
deficiency. The objective of the study was to evaluate safety and tolerability after receiving
a once-weekly dose of hGH-CTP for four weeks. The study had three arms evaluating a
range of doses measured as the equivalent cumulative dose of commercial hGH. The
three cohorts tested the equivalent cumulative dose of 30%, 45% and 100%, respectively.
A total of 39 patients (42 subjects enrolled) was included in the evaluation of study results,
with 13 patients in each cohort. Each cohort contained two female and 11 male subjects.
Phase II data shows that hGH-CTP has the potential to replace daily hGH injections with a
once-weekly or even a twice-monthly injection of hGH-CTP (Exhibit 7), a significant
achievement, in our view. Data collected from 12 patients switched from daily injections to
twice-monthly injections of hGH-CTP at 50% regular cumulative dose showed results
supportive of possible twice-monthly injections.
9 Govardhan C. et al., Novel Long-Acting Crystal Formulation of Human Growth Hormone.
Pharmaceutical Research (2005) 22: 1461-70 10
Walsh G. Second-Generation Biopharmaceuticals. European Journal of Pharmaceutics and Biopharmaceutics (2004) 58: 185-96. 11
Clark R. et al., Long-Acting Growth Hormone Produced By Conjugation with Polyethylene Glycol. Journal of Biological Chemistry (1996) 271: 21969-21977. 12
Cox G.N. et al., A Long-Acting, Mono-PEGylated Human Growth Hormone Analog is A Potent Stimulator of Weight Gain and Bone Growth in Hypophysectomized Rats. Endocrinology (2007) 148: 1590-97.
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Exhibit 7: Phase II Data Show IGF-1 Levels in Normal Range
Source: PROLOR Biotech.
Top-line data from a four-month treatment extension study to monitor insulin-like growth
factor 1 (IGF-1) levels, a protein stimulated by GH and used by endocrinologists to
monitor treatment of GH deficiency, showed that subjects were within the normal range
while receiving once-weekly hGH-CTP injections and that these levels were comparable
to patients receiving daily injections of hGH. We note that all patients recruited to the
study were already on daily hGH treatment and were within the normal range of IGF-1. In
addition to a comparable number of patients staying within a normal range, a higher
percentage of subjects treated with once-weekly hGH-CTP injections were within a narrow
normal range, defined as ±1.5 standard deviations of the norm (Exhibit 8). We note that
there were no unexpected adverse events in the study, and data confirmed safety and
tolerability.
Exhibit 8: IGF-1 Measurements Indicate hGH-CTP Equivalence
Source: PROLOR Biotech.
Upcoming Milestones
A Phase III study of hGH-CTP in adults with GH deficiency is expected to receive
regulatory clearance from FDA and EMA and commence by YE12. The study will test a
once-weekly injection of hGH-CTP in 120-150 patients. The Phase III study is structured
to evaluate 6 months efficacy and 12 months safety. Depending on the speed of
enrollment, the study could finish the efficacy phase before the end of 2013. Therefore, we
are modeling for a US launch in early 2015 with a launch in the EU the following year.
Prolor Biotech, Inc.
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In the pediatric setting, PROLOR initiated a Phase II study in pediatric GH deficiencies
that is scheduled to enroll between 52 and 56 patients. The objective of this study is to
evaluate both safety and efficacy over 12 months, with the primary endpoint being height
velocity. We anticipate data by YE13.
Competitive Landscape
Human growth hormone (hGH) has been used since 1958 to treat GH deficiency. Initially
the only source for the hormone was human cadavers, and the human-derived GH was
produced and distributed by the NIH. This therapeutic was in limited supply and carried a
risk of disease transmission. The first recombinant human growth hormone (rhGH), called
Protropin (somatrem) and made by Genentech, was approved in 1985. Protropin was
identical to the natural human version of the drug with the addition of methionine amino
acid which was required to produce the protein in E. coli. This small modification resulted
in antibody production in some patients, and the product was discontinued in 2004. Over
the last 20 years HGH was approved for a range of indications in the US and EU (Exhibit
9).
Exhibit 9: Approved Indications for Growth Hormone in the US and EU
Source: Kemp S.F. et al., Emerging Options in Growth Hormone Therapy: an Update. Drug Design, Development and Therapy (2011) 5:411-419.
Dosing for HGH started out with 2x/week, which was then increased to 3x/week and
ultimately to daily administration. The increase in dosing frequency was due to
observation that more frequent dosing resulted in better outcome13
. This may be due to a
more natural and constant delivery of the hormone.
The market for HGH is a healthy $2.5-3B today, with 13 active products (Exhibit 10). With
the majority of the marketed drugs approved in the 1990s, most are not covered by
patents at this time. In fact, the most recent approvals were biosimilars, including Valtropin
from Biopartners (private) and Omnitrope from Sandoz, a subsidiary of Novartis.
13
Kemp S.F. et al., Emerging Options in Growth Hormone Therapy: an Update. Drug Design, Development and Therapy (2011) 5:411-419.
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In our view, PROLOR’s hGH-CTP product has the potential to take significant market
share in the hGH market on the basis of once-weekly dosing. Daily injections of hGH are
associated with significant compliance issues, and minimizing the number of painful
injections would be viewed favorably by patients, in our view. Therefore, we feel hGH-CTP
stands to hold a clear competitive advantage over other products on the market, assuming
a comparable safety and efficacy profile.
Prolor Biotech, Inc.
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Exhibit 10: Competitive Landscape – Approved hGH Drugs
Product Company Therapeutic indication Date approved Administration Revenues
Genotropin (r hGH produced in E. coli) Pfizer
GHD in children & adults; Turner syndrome;
SGA in children; idiopathic short stature;
Prader-Wili Syndrome
1995 (US) QD; SubQ injection $889M (2011)
Norditropin (r hGH produced in E. coli) Novo NordiskGHD in children & adults; Noonan syndrome;
Turnder syndrome; SGA in children1995 (US) QD; SubQ injection $888M (2011)
Humatrope (r hGH produced in E. coli) Eli Lilly
GHD in children & adults; idiopathic short
stature; Turner syndrome; growth failure in
children with SHOX; SGA in children
1987 (US) QD; SubQ injection $440.8M (2007)
Saizen (r hGH produced in a mammalian cell line) Merck Serono GHD in children & adults 1996 (US) QD; injection $300.8M (2011)
Nutropin AQ (r hGH produced in E. coli) Genentech
GHD in children & adults; chronic renal
insufficiency; Turner syndrome; idiopathic
short stature
2001 (EU), 1994 (US) QD; injection $282.1M (2011)
Omnitrope (somatropin, r hGH produced in E. coli) Sandoz (Basel)
GHD in children & adults; Prader-Wili
syndrome, Turner syndrome, SGA, and
idiopathic short stature in children
2006 (EU and US) QD; injection $261M (2011)
Serostim (r hGH produced in mammalian cell line)Merck Serono
(Geneva)AIDS-assoicated catabolism/wasting 1996 (US) QD; SubQ injection $93.6M (2010)
Increlex (mecasermin, r hIGF-1 produced in E. coli) Ipsen Severe primary IGF-1 deficiency 2005 (US and EU) QD; SubQ injection $33.7M (2011)
Nutropin (r hGH produced in E. coli) Genentech
GHD in children & adults; chronic renal
insufficiency; Turner syndrome; idiopathic
short stature
1994 (US) QD; injection NA
Somavert (pegvisomant, hGH analog (antogonist)
produced in E. coli)Pfizer Acromegaly 2003 (US), 2002 (EU) QD; SubQ injection NA
Tev-Tropin (r hGH produced in E. coli)Teva
PharmaceuticalsGHD in children 1995 (US)
3x per week;
injectionNA
Valtropin (somatropin, r hGH produced in S. cerevisiae) Biopartners (Baar) GHD in children and adults; Turner syndrome 2007 (US), 2006 (EU) QD; injection NA
Zorbtive (somatropin r hGH produced in mouse C127 cell
lineMerck Serono Short bowel syndrome 2003 (US) QD; injection NA
Source: FDA.gov; Walsh G. Biopharmaceutical Benchmarks 2010. Nature Biotechnology. 2010. 29;9:917-24; Company reports.
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Market Opportunity
The overall adult GHD population is estimated at 6,000 new cases per year in the US and
with a prevalence of 35,000 in the US14
. In the pediatric setting the prevalence of GHD is
estimated to be one in 3,50015
. The annual cost of treatment varies ranges from $11K to
$25K in the pediatric setting and $10-12.5K for adults (Exhibit 11). Given the variability in
dosing and duration of treatment between the range of approved hGH indications, it is
difficult to build a precise model to arrive at the total hGH market size. However, given the
range of approved products the worldwide market size appears to be $2.5-3B/yr. We used
$2.75B as the basis to build on NPV model.
In our model we assume that PROLOR’s hGH-CTP will be priced on par with current hGH
drugs; however, we believe that PROLOR may justify a higher price due to the
convenience and compliance benefit. The benefit is not just for patients but also for payers
which may accept higher price for the increased compliance and potential outcome
improvement.
Exhibit 11: HGD Therapy Costs in the US
Agent Patient Group AWP Est. WAC
Growth hormone Pediatrics $13,000 - $30,000 (annual) $10,800 - $25,000 (annual)
Growth hormone Adults $12,000 - $15,000 (annual) $10,000 - $12,500 (annual)
Zorbtive Short Bowel Syndrome $21,504 (one 4-wk course) $17,920 (one 4-wk course)
Serostim AIDS Wasting Patients $5,000 - $7,500 (monthly) $4,200 - $6,250 (monthly)
IncrelexSevere Primary IGF-1
Deficiency$12,000 - $50,000 (annual) $10,000 - $42,000 (annual)
Source: BCBS of Western New York; Bazalo MS et al. Comparison of Human Growth Hormone Products’ Cost in Pediatric and Adult Patients A Budgetary Impact Model. Managed Care (2007) 16(9):45-51. Oppenheimer estimates
Go to Market Strategy
We believe that PROLOR may partner hGH-CTP with a pharmaceutical company that has
a commercial infrastructure in the hGH space or another endocrinology drug. In our view a
partnership at the end of Phase III seems like the ideal time to maximize shareholder
value. We estimate that given the late stage of the partnership, PROLOR could receive an
attractive royalty stream of 30%.
We note that in October of 2010 PROLOR’s hGH-CTP received orphan drug designation
in the US by FDA. The designation covers growth hormone deficiency in both adults and
children. In addition to seven years of market exclusivity, the designation provides for
lower regulatory fees, certain tax credits and regulatory support for R&D initiatives. Most
importantly, it suggests that hGH-CTP may gain approval based on a single Phase III trial.
Factor VIIa-CTP (MOD-5017) in Hemophilia
Hemophilia Background
PROLOR is developing a long-acting Factor VIIa for the treatment of hemophilia using its
CTP technology platform. Hemophilia is a group of rare bleeding disorders in which blood
14
AACE Clinical Practice Guidelines for Growth Hormone Use in Adult and Children. Endocrine Practice (1998) 4(3): 165-73. 15
Lindsay R. et al., Utah Growth Study: Growth Standards and the Prevalence of Growth Hormone Deficiency. Journal of Pediatrics (1994) 125:29-35.
Prolor Biotech, Inc.
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clots are slow to form. The condition is characterized by prolonged bleeding events and
can be fatal in a small percentage of people. Bleeding is in response to injury, but in
severe cases bleeding can be spontaneous. About 70% of hemophilia A patients have the
severe form of the disorder16
. Hemophilia is a hereditary disorder that is much more
common in males (with rare exceptions) and has two primary types, namely hemophilia A
and hemophilia B. Both types of hemophilia involve different gene mutations on the X
chromosome. Specifically, Factor VIII is associated with hemophilia A, and a lack of
Factor IX is associated with hemophilia B. These clotting factors are part of a larger
clotting cascade involving a number of enzymes. The average incidence of hemophilia A
and B has been estimated at one in 5,000 live male births in the US17
.
Factor VIIa
Patients with hemophilia A or B can form inhibitors (antibodies) against Factor VIII or
Factor IX therapies and become refractory to factor replacement therapy. In these
refractory hemophilia patients Factor VIIa is used to prevent bleeding. Factor VIIa is a
central coagulation factor that works by activating the tissue factor coagulation pathway.
PROLOR is developing a long-acting version of Factor VIIa.
Factor VIIa therapy involves the intravenous delivery of NovoSeven, a recombinant
human Factor VIIa which is marketed by Novo Nordisk A/S and was approved by FDA in
2008. We note that NovoSeven is no longer protected by patents in the US, Japan, or
Europe. That said, NovoSeven generated DKK 8,347M (~$1,498M at the 2011 average
exchange rate) with 47% of revenues generated in the US ~$704M.
We believe that PROLOR’s Factor VIIa-CTP could offer certain competitive advantages
over NovoSeven. Namely, these advantages could include less frequent dosing as well as
shorter and fewer bleeding episodes.
Preclinical Data Summary
PROLOR recently presented data from its preclinical study evaluating its Factor VIIa-CTP
in animal models. This study evaluated pharmacokinetics, pharmacodynamic profiles, and
hemostatic effects in Factor VIII and Factor IX mice following bleeding challenge. The
results showed a longer half-life (5x) and total drug exposure (3.5x) higher than
recombinant Factor VII. As a result, the haemostatic effect was prolonged in mice.
Upcoming Milestones
We anticipate PROLOR will complete pre-IND studies in 4Q12 and commence a Phase II
study in 1H13. We note that safety concerns surrounding the administration of clotting
factors to healthy volunteers prohibit a Phase I study. Therefore, Factor VIIa-CTP will
advance directly to a Phase II study.
16
National Heart Lung and Blood Institute. (Explore Hemophilia: What is Hemophilia?) (July 01, 2011) National Institutes of Health: U.S. Department of Health and Human Services. From NIH website. Accessed 12 July 2012. 17
Soucie J.M. et al., Occurrence of Hemophilia in the United States. American Journal of Hematology (1998) 59:288-294.
Prolor Biotech, Inc.
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Go To Market Strategy
In our view, PROLOR can license commercial rights to a larger pharmaceutical company
or attempt to commercialize VIIa-CTP itself. There are a total of 142 hemophilia treatment
centers in the US listed by the Centers for Disease Control on its website, and in our view
this is a reasonable number of clinics for PROLOR to service directly. In addition, given
the limited number of products on the market and the active and involved patient
community, we believe physician and patient awareness of the product will be high. At this
time, we do not assign a value to this program in our valuation of PROLOR, and we will
revisit this program once we see human data.
Factor IX-CTP (MOD-9017) in Hemophilia B
PROLOR is developing a longer acting Factor IX for the prophylactic treatment of
hemophilia B using its CTP technology platform. The condition causes patients to bleed
abnormally following injury and spontaneous bleeding in severe cases. Hemophilia B is a
hereditary condition caused by a defective gene on the X chromosome that leads to a lack
of clotting Factor IX. Those needing treatment will receive intravenous infusions of
replacement clotting factors. Mild and moderate cases often receive acute treatment, such
as before surgery, while severe cases receive chronic preventative treatment. In severe
cases of hemophilia B (Factor IX activity <1%) patients require preventative infusions18
two or three times weekly in the hospital.
Preclinical Data
PROLOR is developing a CTP-modified version of Factor IX, called Factor IX-CTP, and
the company reported preclinical data demonstrating a significant increase in clotting
duration activity in a hemophilic mouse model versus the FDA approved Factor IX,
BeneFIX (Exhibit 12). These data also show that bleeding episodes were shorter and less
intense, and none of the Factor IX-CTP treated animals had spontaneous re-occurring
bleeding.
Exhibit 12: Preclinical Study Design for Factor IX-CTP vs. BeneFIX
Source: PROLOR Biotech.
It can be seen from the Factor IX-CTP preclinical data (Exhibit 13) that mice receiving the
once-weekly injection of Factor IX-CTP lost less blood during both the first and second
bleeding event, and had no spontaneous bleeding events.
18
Medical and Scientific Advisory Council (MASAC), National Hemophilia Foundation. MASAC Recommendations Concerning Prophylaxis (Regular Administration of Clotting Factor Concentrate to Prevent Bleeding) (June 3, 2006). MASAC Recommendation #170. From National Hemophilia Foundation website. Accessed 11 July 2012.
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Exhibit 13: Preclinical Factor IX-CTP Data
1st
Bleeding Event 12h Post 2nd
Bleeding Event
Clotting Activity Long Acting Clotting Activity
Blood Loss Blood Loss Bleeding Duration Bleeding Episodes
Compared to FIX-CTP Compared to FIX-CTP Compared to FIX-CTP (Spontaneous)
Untreated
Control vehiclex2.8 x4.6 x3.1 83%
BeneFIX x2 x3.8 x3.1 50%
FIX-CTP x1 x1 x1 0%
2nd
Bleeding Event
Long Acting Clotting Activity
Note: This assay compares clotting times of Untreated Control vehicle, BeneFIX and FIX-CTP. Source: PROLOR Biotech.
Market Opportunity & Competition
Hemophilia B is a relatively rare hereditary condition that is primarily found in males. The
prevalence of hemophilia B is approximately one in 25,000 males in the US19
with about
half of those having mild to moderate disease (Factor IX <1% of normal).
We believe the Factor IX market is >$700M annually with the largest product being
Pfizer’s BeneFIX at $693M in revenue for 2011. We have not assigned any value to
PROLOR’s Factor IX-CTP program at this time but highlight that it represents upside to
our current valuation.
With regard to the competitive landscape, it is worth mentioning that a number of
marketed products are derived from human plasma whereas Pfizer’s BeneFIX is a
recombinant product. We note that the recombinant human Factor VIIa, NovoSeven, is
used to treat hemophilia B in patients who have developed inhibitors against replacement
factors.
Exhibit 14: Factor IX Competitive Products
Company Brand Name Condition Indication Source Revenue ($M)
Pfizer BeneFIX Factor IX Hemophilia B recombinant $693M
Novo-Nordisk NovoSeven Factor VIIa Hemophilia recombinant $1,498M
Grifols AlphaNine SD Factor IX Hemophilia B human plasma NA
Grifols Profilnine SD Factor IX Hemophilia B human plasma NA
CSL Behring Mononine Factor IX Hemophilia B human plasma NA
Baxter Proplex-T Factor IX Hemophilia B human plasma NA
Baxter Bebulin VH Factor IX Hemophilia B human plasma NA
Source: FDA.gov; Company reports.
PROLOR has not commented yet when it anticipates advancing its Factor IX-CTP into
human clinical studies.
19
Kessler C.M. and Mariani G., Clinical Manifestations and Therapy of the Hemophilias. In: Colman R.W. et al., eds. Homeostasis and Thrombosis: Basic Principles and Clinical Practice. 5 ed. Philadelphia: Lippincott-Raven (2006) 887-904.
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Oxyntomodulin (MOD-6030) in Diabetes Type II & Obesity
In December 2010, PROLOR acquired the rights to reversible PEGylation (RevPEG)
technology from Yeda Research and Development Company, the technology transfer arm
of the Weizmann Institute of Science (Yeda). This technology is being used to form long-
acting versions of therapeutic peptides and small molecules. Although we anticipate
PROLOR will use its RevPEG license for the development of other products in the future,
the company is currently conducting preclinical work in animals to evaluate the utility of
adding RevPEG technology to the novel peptide oxyntomodulin for the treatment of both
type II diabetes and obesity.
Oxyntomodulin (OXM) is a naturally occurring peptide hormone released from cells of the
gastrointestinal mucosa following food intake. Oxyntomodulin is secreted from distal-
intestinal L-cells and is a peptide that is strongly implicated in satiation (feeling full after
eating)20
. In previous studies the injection of OXM has been shown to suppress appetite,
reduce food intake and body weight without side effects21,22
. It was also shown that
injections in humans decreased body weight by 0.5 kg/wk and more than placebo23
. The
challenge of developing OXM as an anti-obesity therapy is the hormone’s short half-life
and the need for multiple daily subcutaneous injections leading to minor discomfort and a
likely compliance issue.
The formation of a long-acting version of OXM with the addition of RevPEG, called OXM-
RPEG (aka MOD-6030) could reduce the number of required daily injections. By way of
background, many drugs have reached the market using polyethylene glycol (PEG)
conjugates to improve the pharmacokinetics by retarding kidney filtration. We note that
PEG is nontoxic and nonimmunogenic. However, key to PEGylation is releasing the drug
from the PEG carrier using a cleavable linker. Also important is the rate at which cleavage
impacts the amount of drug being released into the body. Therefore, the goal is to design
a linker that releases the drug steadily over time to avoid any unwanted safety issues. The
reversible PEGylation technology developed at the Weizmann Institute of Science and
licensed to PROLOR is a hydrolysable bond that uses fluorenylmethoxycarbonyl linkers24
.
Preclinical Data Summary
In June 2011 PROLOR released preclinical animal data showing significant increases in
weight loss with OXM-RPEG injected once or twice weekly when compared with native
OXM injected twice daily. We highlight that OXM-RPEG was also more potent, with the
total cumulative weekly dose injected being just 15% of the OXM dose over the same
period. In our view, these data suggest OXM-RPEG has clearly increased plasma half-life
with the functional hydrolysable linker versus OXM. In our view, a once- or twice-weekly
injection versus multiple daily injections could make OXM an attractive therapeutic option.
20
Cummings D.E. and Overduin J., Gastrointestinal Regulation of Food Intake. The Journal of Clinical Investigation (2007) 117(1): 13-23. 21
Cohen M.A. et al., Oxyntomodulin Suppresses Appetite and Reduces Food Intake in Humans. The Journal of Clinical Endocrinology & Metabolism (2003) 88(10): 4696-4701. 22
Dakin C.L. et al., Oxyntomodulin Inhibits Food Intake in the Rat. Neuroendocrinology. (2001) 142(10): 4244-50. 23
Wynne K. et al., Subcutaneous Oxyntomodulin Reduces Body Weight in Overweight and Obese Subjects: A Double-Blind, Randomized, Controlled Trial. (2005) 54(8):2390-95. 24
Reversible PEGylation: A Novel Technology to Release Native Interferon Alpha2 Over A Prolonged Time Period. Journal of Medicinal Chemistry (2004) 47(20): 4897-4904.
Prolor Biotech, Inc.
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PROLOR presented a variety of preclinical data showing impressive weight reduction
associated with its OXM-RPEG in mice. The study compared OXM dosing 2x/day at 5,000
nmol/kg to OXM-RPEG at 5,000 nmol/kg and 8,000 nmol/kg injected on days 1, 4, and 7
(see Exhibit 15). The results show a 32% reduction in weight at day 12 with OXM-RPEG
versus control. An 8% weight reduction using OXM (2x/day) shows the rapid clearance of
OXM from the body.
Exhibit 15: OXM-RPEG Weight Reduction
Data are adjusted means (n=8–9). SEMs are calculated from the residuals of the statistical model. Data analyzed by ANCOVA with body weight on Day 1 as covariate followed by Williams’ test for PEG40-FMS-OXM and PEG40-EMCS-OXM and multiple t test for OXM 5000, PEG30-FMS-OXM and sibutramine. Significant differences vs. appropriate vehicle: *p<0.05, **p<0.01, ***p<0.001. Source: PROLOR Biotech
Cumulative food intake also declined as a result of OXM-RPEG dosing. With high-dose
OXM-RPEG, a ~50% reduction in cumulative food intake was measured by day 13
(Exhibit 16). Comparatively, an ~8% reduction in cumulative food intake was associated
with OXM (2x/day) injections.
Exhibit 16: OXM-RPEG Preclinical Data Shows Lower Food Intake
Data are adjusted means (n = 8-9). SEMSs are calculated from the residuals of the statistical model. Data analyzed by ANCOVA with baseline (average of days -6 to 0) as covariate followed by Williams’ test for PEG40-FMS-OXM and PEG40-EMCS-OXM and multiple t test for OXM 5000, PEG30-FMS-OXM and sibutramine. Significant differences vs vehicle: *p<0.05, **p<0.01, ***p<0.001. Source: PROLOR Biotech
Prolor Biotech, Inc.
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The data supports the weight reduction anticipated for OXM-RPEG and suggests a
superiority of this OXM (OXY) formulation vs. standard PEGylation (OXY-PEG) and
unmodified OXM (Exhibit 17). A more frequent dosing of OXM-RPEG (days 1, 4, and 7)
appears to give a greater benefit than just weekly dosing.
Exhibit 17: OXM-RPEG Preclinical Data Shows Weight Reduction
Data are adjusted (n = 8–9). SEMs are calculated from the residuals of the statistical model. Data analyzed by ANCOVA with body weight on Day 1 as covariate followed by Williams’ test for PEG40-FMS-OXM and PEG40-EMCS-OXM and multiple t test for OXM 5000, PEG30-FMS-OXM and sibutramine. Significant differences vs. appropriate vehicle: *p<0.05, **p<0.01, ***p<0.001. Source: PROLOR Biotech
Upcoming Milestones
We expect that in 4Q12 PROLOR will complete its IND-enabling study and advance OXM-
RPEG into the clinic in 1H13. We believe that given the large and expensive commercial
infrastructure requirement to market an obesity drug, PROLOR is likely to seek a
commercial partner for OXM-RPEG at some point in the future. At this time, we do not
explicitly ascribe value to this program in our valuation of PROLOR, but view it as potential
upside.
Industry Interest in Oxyntomodulin
Given the promise held by OXM for the treatment of obesity and type II diabetes, there are
several large companies with active development programs. These players include Merck,
Boehringer Ingelheim (private), Lilly, Pfizer, and Novo Nordisk. We highlight the
agreement between Denmark-based Zealand Pharma A/S and the privately held German
company, Boehringer Ingelheim GmbH, for an exclusive license to a preclinical
oxyntomodulin variant targeted for single-daily injection. Under the terms of the agreement
Zealand Pharma is eligible to receive up to €376M in total projected milestone payments.
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Other Development Programs
Creating long-acting versions of currently marketed therapeutic proteins offers clear
competitive advantages. We believe PROLOR will continue to advance new candidates
that stand to benefit from improved dosing frequency and address large markets. With
many marketed therapeutic proteins set to lose patent coverage over the next few years
(many others have no remaining patent coverage), we believe that PROLOR has many
development options to investigate. PROLOR’s long-acting version could have a
significant competitive advantage over biosimilars entering the market.
One of the development programs that we would like to highlight is an extended version of
erythropoietin (EPO), a glycoprotein hormone secreted by the kidney that promotes the
formation of red blood cells in the bone marrow. EPO is used to treat anemia, a condition
commonly seen in cases of chronic kidney disease (CKD) and cancer. In the US the
combined sales of EPOGEN and Aranesp were $3 billion in 2011.
Key Licenses and Agreements
PROLOR has ten US patents forming its IP portfolio (Exhibit 18). Central to its IP are three
patents covering the CTP technology licensed from Washington University. In 2007
PROLOR entered into a new exclusive license agreement with Washington University that
grants PROLOR access to three CTP patents covering all native and non-native
therapeutic proteins and peptides except Chorionic Gonadotropin (hCG), Thyroid
Stimulating Hormone (TSH), Luteinizing Hormone (LH) and Follicle Stimulating Hormone
(FSH). The license extends through the life of these patents and terminates in 2018.
In exchange, under the terms of the license agreement, PROLOR is obligated to pay fees
to Washington University. These fees include a $30K annual license fee as well as royalty
fees of 1.5% to 5% on net revenues and sub-licensing fees of 7.5% to 20%.
In addition to the patents it licensed from Washington University, PROLOR currently has
seven issued patents covering its CTP technology. We believe the company’s IP coverage
may now extend through 2031. This assumption is factored into our market projections.
The company’s IP portfolio is listed below.
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Exhibit 18: PROLOR Biotech IP Portfolio
Patent Number Issue Date Title Owner Expiration
U.S. # 5,712,122 1/27/1998 CTP-extended proteins Washington University 2018
U.S. # 5,759,818 6/2/1998
N-terminal CTP extended pharmaceutical
peptides and proteins Washington University 2018
U.S. # 6,225,449 5/1/2001
Hormone analogs with multiple CTP
extensions Washington University 2021
U.S. # 7,553,940 2/1/2007
Long-acting EPO polypeptides and
derivatives therof PROLOR Biotech 2027
U.S. # 8,097,435 1/17/2012
Polynucleotides encoding long-acting
growth hormone polypeptides PROLOR Biotech 2032
U.S. # 8,114,836 2/14/2012 Long-acting veterinary polypeptides PROLOR Biotech 2032
U.S. # 7,553,941 6/30/2009
Long-acting polypeptides and methods of
producing same PROLOR Biotech 2029
U.S. # 8,110,376 2/7/2012
Long-acting EPO polypeptides and
derivatives therof PROLOR Biotech 2032
U.S. # 8,048,848 11/1/2011
Long-acting interferons and derivatives
thereof PROLOR Biotech 2031
U.S. # 8,048,849 11/1/2011
Long-acting polypeptides and methods of
producing same PROLOR Biotech 2031
Sources: Company reports; uspto.gov.
Source: Correale J. et al., The Impact of Parasite Infections on the Course of Multiple Sclerosis. Journal of Neuroimmunology (2011) 233: 6-11.
Exclusive License of Reversible PEGylation Technology
PROLOR has an exclusive license agreement with Yeda Research and Development
Company Ltd. (the technology transfer part of the Weizmann Institute of Science). The
license covers Yeda’s proprietary reversible PEGylation technology capable of being used
to form long-acting therapeutic peptides and small molecules. The reversible PEGylation
has encouraging preclinical animal data and is complementary to PROLOR’s CTP
technology platform, in our view. We note that this agreement excludes hemophilia and
insulin, but includes all other therapeutic indications. The license extends through the life
of the patents and includes certain fees, notably a 3.5% royalty on all net future sales.
Since 2009 PROLOR has evaluated this technology under an option agreement and has
focused primarily on in the obesity space (oxyntomodulin).
Prolor Biotech, Inc.
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Management Biography Philip Frost, M.D.
Chairman of the Board of Directors
Dr. Frost has served as chairman of the board of directors since March 2008 and as a
member of the board since May 2007. Concurrently, Dr. Frost serves as CEO and
chairman of Opko Health, Inc. Dr. Frost also currently serves as the chairman of the board
of Teva Pharmaceutical Industries Ltd. Dr. Frost served as the chairman of IVAX
Corporation, the multinational pharmaceutical corporation, from 1987 to its acquisition by
Teva in July 2006. In addition, Dr. Frost has served as the chairman of Ladenburg
Thalmann Financial Services since July 2006 and as a director since March 2005. Prior to
founding IVAX, Dr. Frost founded and served as chairman of Key Pharmaceuticals, Inc.
from 1972 until its acquisition in 1986 by Schering Plough Corporation.
Dr. Frost is vice chairman of the board of governors of the American Stock Exchange and
is a trustee of Mount Sinai Medical Center, Scripps Research Institutes, and the Miami
Jewish Home for the Aged. Dr. Frost also serves on the board of regents of the
Smithsonian Institution.
Dr. Frost Holds a B.A. in French literature from the University of Pennsylvania and an
M.D. from the Albert Einstein College of Medicine.
Abraham Havron, Ph.D.
Chief Executive Officer and Director
Dr. Havron serves as the chief executive officer and a director of PROLOR Biotech and
brings over 30 years biotechnology industry experience to his current role. Dr. Havron
joined the company in December 2005 in his current position. Previously, Dr. Havron
served as a as co-founder and director of R&D for Interpharm Laboratories, a Serono
subsidiary. Interpharm Laboratories developed the blockbuster drug Rebif for the
treatment of multiple sclerosis. Dr. Havron also served as vice president manufacturing
and process development for BioTechnology General Ltd., Rehovot, Israel, a subsidiary of
Savient Pharmaceuticals. In addition, at Clal Biotechnology Industries Ltd., Dr. Havron
served as vice president and chief technology officer. Dr. Havron holds a Ph.D. in bio-
organic chemistry from the Weizmann Institute of Science.
Shai Novik
President and Director
Mr. Novik is currently a member of the board of directors and serves as president of
PROLOR Biotech. From 2003 to 2005, Mr. Novik served as the managing director of A.S.
Novik, a private investment firm. From 2000 to 2002, he served as the managing director
of the investment firm, A-Online Capital. Mr. Novik also served as the chief operating
officer and head of strategic planning for the life sciences investment company, THCG.
THCG held a portfolio of life sciences and medical device companies and was itself a
portfolio company of the large private equity fund, Greenwich Street Partners. Mr. Novik
served for seven years in the Israeli Defense Forces and holds an M.B.A., with distinction,
from Cornell University.
Prolor Biotech, Inc.
28
Faud Fares, D.Sc.
Chief Scientific Officer and Director
Dr. Fares is a founder of the company and currently serves as its chief scientific officer
and a member of the board of directors. While a post-doctoral student with Prof. Irving
Boime at Washington University in St. Louis, Dr. Fares worked on the findings and
experiments that form the core of PROLOR’s technology. After returning to Israel in 2001
Dr. Fares formed the company to license the CTP technology from Washington University
for certain therapeutic indications. Dr. Fares is also currently the head of the Molecular
Biology Division, Biochemical Research Unit, Department of Biochemistry and Molecular
Genetics at the Carmel Medical Center in Haifa, Israel. The author of over 40 scientific
articles and book chapters, Dr. Fares is also the recipient of several awards, including the
prestigious Lindner Prize of the Israel Endocrine Society (2004), and the Shawers Prize of
the Israel Endocrine Society (1997). Dr. Fares graduated from the department of
pharmacology at Technion – Israel Institute of Technology (Haifa, Israel).
Eyal Fima, Ph.D.
Chief Operating Officer of Modigenetech, Ltd. – PROLOR Biotech’s wholly owned
R&D subsidiary.
Dr. Fima serves as the chief operating officer of Modigenetech, Ltd., the company’s wholly
owned subsidiary, and previously served as Modigenetech’s vice president of product
development. From 2001 to 2002, Dr. Fima served as a co-founder and CEO of
NatSpears Ltd., a biotechnology company focused on the treatment of prostate cancer.
Previously, Dr. Fima was a research fellow at the Immunology Department of ben-Gurion
University in Israel from 2002 to 2005. In addition, as coach of the Israel Taikwondo team,
Dr. Fima led the team to medals in the 1998 and 2000 world championships, as well as
the 1997, 1998, and 1999 European championships. Dr. Fima holds a Ph.D. in
immunotherapeutic protocols and cytokines regulation from Ben-Gurion University’s
Medical School in Israel, and an MBA from the School of Business at Ben-Gurion
University in Israel.
Stock prices of companies mentioned that are not covered by Oppenheimer & Co.
(priced as of 8/27/12):
Baxter (BAX-NYSE, $59.11) Ladenburg Thalmann Financial Svcs (LTS-NYSE, $1.37) Lilly (LLY-NYSE, $43.70) Merck (MRK-NYSE, $43.19) Novo Nordisk A/S (NVO-NYSE, $156.34) Opko Health, Inc. (OPK-NYSE, $4.51) Pfizer (PFE-NYSE, $24.04) Zealand Pharma A/S (ZEAL-DK, DKK 88.50)
Prolor Biotech, Inc.
29
Financial Statements
Exhibit 19: Historical & Projected Income Statement
Historical and Projected Income Statement ($000s) Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
FY Ends December 31st 1QA 2QA 3QA 4QA 1QA 2QA 3QE 4QE 1QE 2QE 3QE 4QE
Revenues - - - - - - - - - -
Total Revenue - - - - - - - - - - - - - - - - -
OPERATING EXPENSES
In-process research and development write-off
Research and development, net 5,555 5,220 3,035 2,377 2,126 3,883 11,422 4,304 2,126 4,500 4,500 15,430 5,000 5,000 5,000 5,000 20,000
General and adminsitrative 1,902 2,457 709 878 808 1,030 3,425 790 859 850 1,000 3,498 900 900 900 1,000 3,700
Total Operating Expenses 7,457 7,677 3,744 3,255 2,935 4,913 14,847 5,094 2,985 5,350 5,500 18,929 5,900 5,900 5,900 6,000 23,700
Operating (loss) income (7,457) (7,677) (3,744) (3,255) (2,935) (4,913) (14,847) (5,094) (2,985) (5,350) (5,500) (18,929) (5,900) (5,900) (5,900) (6,000) (23,700)
Financial income, net (27) 118 277 165 (550) (108) (216) 94 (84) 90 90 190 90 90 90 90 360
(Loss) income before income tax benefit (expense) (7,485) (7,559) (3,467) (3,090) (3,484) (5,022) (15,063) (4,999) (3,069) (5,260) (5,410) (18,739) (5,810) (5,810) (5,810) (5,910) (23,340)
Income tax benefit (expense)
Net (loss) income (7,485) (7,559) (3,467) (3,090) (3,484) (5,022) (15,063) (4,999) (3,069) (5,260) (5,410) (18,739) (5,810) (5,810) (5,810) (5,910) (23,340)
Basic and diluted (0.21)$ (0.19)$ (0.08)$ (0.07)$ (0.06)$ (0.09)$ (0.29)$ (0.09)$ (0.05)$ (0.08)$ (0.09)$ (0.31)$ (0.09)$ (0.09)$ (0.09)$ (0.08)$ (0.36)$
Basic and diluted shares outstanding 35,549 40,030 43,360 43,409 54,342 54,565 51,961 54,730 59,311 62,785 63,035 59,965 63,285 63,535 63,785 71,535 65,535
FY13EFY09A FY10A FY11A FY12E
Source: Company reports; Oppenheimer & Co. estimates.
Prolor Biotech, Inc.
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Exhibit 20: Historical Balance Sheet
Historical Balance Sheet ($000s)
ASSETS Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Current Assets 1QA 2QA 3QA 4QA 1QA 2QA
Cash and cash equivalents 3,522 24,474 22,335 16,011 15,967 13,262 13,262 7,250 26,617
Short term deposits - 1,439 319 3,258 1,663 139 139 1,884 15,836
Accounts receivable and prepaid expenses 85 642 506 1,413 245 329 329 382 491
Restricted cash 92 103 171 174 162 99 99 - 57
Total current assets 3,699 26,659 23,331 20,857 18,038 13,829 13,829 9,516 43,002
Long-term Assets
Property and equipment, net 284 350 380 793 813 898 898 964 940
Assets held for employees' severance payments 124 193 212 232 227 234 234 259 259
Restricted cash - - - - - 59 59 61 -
Long term deposit 2 2 2 2 3 4 4 5 2
Total long-term Assets 411 546 595 1,027 1,043 1,196 1,196 1,289 1,202
Total Assets 4,109 27,205 23,926 21,883 19,081 15,025 15,025 10,805 44,204
LIABILITIES
Current Liabilities
Trade payables 132 429 152 435 572 359 359 986 157
Related parties payable 204 207 55 66 63 221 221 65 59
Accrued expenses and other liabilities 505 1,353 1,310 1,578 1,260 1,638 1,638 1,020 1,033
Total Current Liabilities 840 1,990 1,516 2,079 1,895 2,219 2,219 2,071 1,249
Liability in Respect of Employees Severance Payments 265 285 277 285 334 332
STOCKHOLDER'S EQUITY
Stock capital -
Preferred stock 0 - - - - - - - -
Common shares 0 1 1 1 1 1 1 1 1
Additional paid-in capital 30,154 59,578 60,196 60,660 61,534 62,168 62,168 63,046 100,338
(Deficit) accumulated during the development stage (27,025) (34,584) (38,051) (41,141) (44,625) (49,647) (49,647) (54,646) (57,716)
Total stockholders' equity 3,129 24,995 22,145 19,519 16,909 12,521 12,521 8,400 42,623
Total liabilities and stockholders equity 4,109 27,205 23,926 21,883 19,081 15,025 15,025 10,805 44,204
FY11AFY09A FY10A
Source: Company reports.
Prolor Biotech, Inc.
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Investment ThesisPROLOR Biotech is a development-stage biopharmaceutical company developing proprietary long-acting versions of alreadyapproved therapeutic proteins. The company's leading asset is hGH-CTP, a long-acting version of human growth hormonefor the treatment of growth hormone deficiency. If successful, hGH-CTP will reduce dosing requirements from daily injectionsto just one injection per week. PROLOR will soon commence a pivotal Phase III trial of hGH-CTP in adult growth hormonedisorders. If successful, we believe PROLOR's hGH-CTP stands to capture significant share in the $2.5-$3B growth hormonemarket.
Price Target CalculationOur valuation is based on an NPV analysis of hGH-CTP in the US and EU in human growth deficiencies (HGD). We estimatepeak worldwide revenues in HGD of $1.6B and risk adjust our projections by assigning a 70% chance of approval. Applyinga 15% discount rate we reach a NPV of $500M, or approximately $7/share.
Key Risks to Price TargetKey risks include clinical trial risk, regulatory risk, competitive risk, partnership risk, reimbursement risk, and liquidity and smallcapitalization risk. Note: Stocks trading under $5 may be considered speculative and appropriate for risk-tolerant investors.
Important Disclosures and CertificationsAnalyst Certification - The author certifies that this research report accurately states his/her personal views about thesubject securities, which are reflected in the ratings as well as in the substance of this report. The author certifies that no partof his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views containedin this research report.Potential Conflicts of Interest:Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firmincluding the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensationbased upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any researchanalyst and any member of his or her household from executing trades in the securities of a company that such researchanalyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an officer,director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in coveredcompanies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long positionof less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options,futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoingarrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.
Prolor Biotech, Inc.
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All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co.Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories,please write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department,Business Manager.
Oppenheimer & Co. Inc. Rating System as of January 14th, 2008:
Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months.
Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months.
Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months.
Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential conflictof interest.
Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008:
Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/orthe ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector.
Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to aperceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higherrated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy, aggressivetrading accounts might decide to liquidate their positions to employ the funds elsewhere.
Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness perceivedin the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.
Distribution of Ratings/IB Services Firmwide
IB Serv/Past 12 Mos.
Rating Count Percent Count Percent
OUTPERFORM [O] 318 55.69 134 42.14
PERFORM [P] 250 43.78 89 35.60
UNDERPERFORM [U] 3 0.53 1 33.33
Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do notcorrelate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assignedbuy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform.
Company Specific DisclosuresOppenheimer & Co. Inc. expects to receive or intends to seek compensation for investment banking services in the next 3months from PBTH.
In the past 12 months Oppenheimer & Co. Inc. has received compensation for investment banking services from PBTH.
In the past 12 months Oppenheimer & Co. Inc. has managed or co-managed a public offering of securities for PBTH.
In the past 12 months Oppenheimer & Co. Inc. has provided investment banking services for PBTH.
Additional Information Available
Prolor Biotech, Inc.
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Prolor Biotech, Inc.