Protalix BioTherapeutics stock price falls 82%

A Phillip Frost investment fell 82 percent in one day -- a loss of $287 million.
Posted on Fri, Oct. 26, 2007
Digg del.icio.us AIM reprint print email
BY JOHN DORSCHNER
jdorschner@MiamiHerald.com

Protalix BioTherapeutics, an Israeli biotech firm with strong Miami ties, made a new stock offering on Thursday that caused its stock price to plummet 82 percent.

Trading was halted Wednesday when the price was at $36.06. The company announced it was issuing 10 million new shares at $5 a share. By the close of trading Thursday, Protalix had fallen to $6.31.

The biggest loser was its largest shareholder, Phillip Frost, the Miami physician-entrepreneur who built up and sold the drug maker IVAX. In less than a day, the value of Frost's investment in Protalix sank from $352 million to $65 million.

It's a rare setback for Frost, known for his Midas touch. Smaller investors frequently follow his lead. InsiderScore.com ranked him No. 2 in the nation as the insider whose disclosed stock purchases have generated the highest rates of return.

Last month, Forbes magazine put him at No. 204 in its list of richest Americans, with a net worth of $2.2 billion.

Frost did not return a phone call seeking comment, but many investors were howling with pain on a Google message board. ''This is the biggest scam. . . . All investors got screwed,'' wrote one. ''I have 280 shares of it. . . . Do you guyz have any link abt this decrease?'' wrote another.

Kenneth Vianale, a Boca Raton attorney specializing in shareholder lawsuits, said offering new shares at $5 when the stock was trading at $36 ``is nuts in my view. Obviously shareholders will be pretty mad. This seems to be actionable. It's outrageous.''

A Protalix spokesman in New York, Lee Roth, said, ''I'm not able to comment. I hope to have some answers shortly.'' A receptionist at the company's headquarters in Carmiel, Israel, said no one was available. The firm's CEO, David Aviezer, did not immediately respond to an e-mail.

Started in 1993, Protalix is a biotech firm that has no profit and no revenue as it works to refine products. It is developing a way to make proteins for pharmaceutical products in cultured carrot cells.

The chairman is Eli Hurvitz, 75, who is also chairman of the board of Teva Pharmaceutical Industries, the Israeli firm that bought Frost's IVAX for

$7.4 billion in early 2006.

Later that year, Frost and a small group used a shell company, Orthodontix, to do a reverse merger with Protalix. They invested $15 million, and through the merger Protalix became publicly traded.

Frost, now a Protalix director, continued to buy stock until he owned 9.7 million shares, or 15 percent, of the company before the new stock offering, according to Securities and Exchange Commission filings.

Protalix had about 65 million shares before Thursday, but they were closely held and lightly traded, with an average 20,000 to 60,000 shares changing hands daily. On Thursday, 7.2 million shares were traded.

For the first six months, Protalix lost $12.6 million. It noted in its quarterly report with the SEC that as of June 30, ``the company does not have sufficient resources to complete the commercialization of any of its proposed products.''

In early October, seeking more money, the company filed with the SEC a prospectus for a stock offering of 3.7 million new shares and 1.2 million held by existing shareholders.

The firm said it hoped to raise $121 million at $35 per share, which was close to what the stock was then trading at. But a note warned: ''Given the limited liquidity of our common stock, this trading price may not reflect the actual fair market value of our common stock.'' Announcing the sale of new stock could result ``in a significantly lower public offering price.''

That's what happened. After consulting with investment bankers, Protalix changed the offering terms to 10 million shares at $5 each. Because of that valuation, the company, which had previously had a total stock value of $2.3 billion, was suddenly worth about $375 million.

The move perplexed small traders. ''Holy gosh!'' wrote one investor on a Google message board. ``Anyone know what's going on?''
Shares of Protalix have been highly volatile and have fallen more than 10 percent in a single day at least three times since August. There were at least an equal number of times when the shares rose more than 20 percent since then.

Miami doctor and businessman Phillip Frost is one of the largest shareholders in Protalix, with about 14.9 percent as of last March. The value of that investment would have dropped by almost $300 million in Thursday's slump.

Frost, who is also the vice-chairman of Israeli generic drugmaker Teva Pharmaceutical Industries Ltd (TEVA.O: Quote, Profile, Research), acquired a publicly traded company, Orthodontix Inc, about two years ago. This company then acquired Protalix at the beginning of this year and used Protalix as the name of the combined company.

Protalix's previous year-low was on Aug.1 when it closed at $12.22. However, the shares touched their year-high within 21 days when they closed at $48.40.

In July, Protalix said it reached an agreement with the U.S. Food and Drug Administration on the final design of its key late-stage trial for its drug, prGCD, to treat Gaucher disease.

Gaucher disease is caused by a specific enzyme deficiency due to a genetic mutation received from both parents. It can cause enlargement of the liver and spleen, anemia, bone pain and fractures.

The company expects to start enrollment for the trial during the third quarter of 2007.