PLX Protalix BioTherapeutics Inc

Pfizer Inc. (PFE) agreed to pay at least $60 million for rights to Protalix Biotherapeutics Inc.'s (PLX) experimental drug for a rare genetic disease, setting the stage for potentially more formidable competition for Genzyme Corp.'s (GENZ) best-selling drug.

Pfizer said Tuesday it signed an agreement with Protalix to develop and commercialize taliglucerase alfa, now in development for the treatment of Gaucher's disease, an inherited metabolic disorder. In October, Protalix reported positive results from a late-stage trial of the drug, and is preparing to apply for U.S. Food and Drug Administration approval.

The profile of Protalix's drug has gotten a boost from problems at Genzyme, of Cambridge, Mass., whose Cerezyme is the dominant treatment for Gaucher's and brought in more than $1.2 billion in revenue last year.

In June, Genzyme was forced to interrupt production of Cerezyme and another drug, Fabrazyme, to sanitize a Massachusetts production plant after finding a virus in it. Additional problems with Genzyme products have emerged since then, and Genzyme shares have plunged about 30% since February.

Under a special arrangement approved by the FDA, some Gaucher's patients have been permitted to take the Protalix drug because of the Genzyme shortage, and analysts were expecting the Protalix drug to pose a competitive threat to Genzyme even before the Pfizer deal was announced.

Genzyme said separately Tuesday it has begun shipping vials of newly produced Cerezyme from its Massachusetts plant. Initial shipments are intended for the most vulnerable patients, and expanded shipments are expected by the end of the year.

Genzyme shares were recently up 69 cents, or 1.4%, to $51.39.

Nevertheless, by linking up with the largest drug company in the world, Protalix appears to be bolstering its potential competitive position.

"The improved access to global pharmaceutical markets through Pfizer elevates the [taliglucerase alfa] threat to Cerezyme and implies potential downside to Cerezyme" sales estimates, J.P. Morgan analyst Geoffrey Meacham wrote in a research note Tuesday.

But Leerink Swann analyst Joshua Schimmer, who follows Genzyme, said the Pfizer-Protalix deal was widely expected and shouldn't change assumptions about the Protalix drug's potential to take market share away from Cerezyme. Schimmer said Genzyme had more pressing problems, including Tuesday's disclosure that the resolution of production problems for Fabrazyme appears behind schedule.

New York-based Pfizer will receive exclusive worldwide licensing rights for the commercialization of taliglucerase alfa, while Protalix will retain rights in its home country of Israel. In addition to the $60 million up-front payment, Pfizer could pay up to $55 million in additional regulatory milestone payments to Protalix. Pfizer and Protalix will share revenue and expenses for the drug on a 60%/40% basis, respectively.

Protalix shares dropped 96 cents, or 9.7%, to $8.90, possibly on investor disappointment that the company didn't leverage its Gaucher's drug for a takeover, or that the terms of the Pfizer deal weren't more generous.

For Pfizer, the Protalix deal represents a continued push into biologics, or drugs derived from living cells, as opposed to traditional chemicals. Biologics can command higher prices and are less vulnerable to generic competition.

The Protalix drug is a so-called enzyme-replacement therapy derived from a proprietary plant cell-based expression platform, using genetically engineered carrot cells. Cerezyme is made by a different process, using mammalian cells.

Pfizer shares rose 49 cents, or 2.7%, to $18.66.

-By Peter Loftus, Dow Jones Newswires; 215-656-8289; peter.loftus@dowjones.com

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