Akari puts CEO on administrative leave pending probe of inaccurate analyst report, sinking stock

Akari Therapeutics has put its CEO on administrative leave pending investigation of an inaccurate analyst report. The action forces CEO Gur Roshwalb, M.D., to step aside while a special committee formed by the board figures out whether Akari staff were involved in the creation of the inaccurate report from Edison Investment Research.

Edison issued the report titled “Akari’s Coversin matches Soliris in Phase II” on April 26. The next day it withdrew the report, citing the discovery of “material errors.” Akari flagged up the situation to investors and pointed them toward its own press release on the phase 2 trial for an accurate write up of the study. Edison responded by suspending coverage of Akari while it looked into the matter. Now Akari has started its own investigation.

The Akari board has put together a special committee to look into the creation of the report, with a particular focus on getting to the bottom of the biotech’s involvement in the process. That focus has led Akari to put Roshwalb on administrative leave for the duration of the investigation. Ray Prudo, M.D., executive chairman of Akari, is temporarily taking on Roshwalb’s responsibilities.

Comments made by Edison when it pulled the report and suspended coverage implicate Akari in the process. Edison said the report went through its normal publication process, which includes “fact checking of the document by the issuer.” In this context, the issuer is Akari, the company that is issuing equity.

The note published by Edison said Coversin achieved the "same results" as Alexion’s Soliris, the only drug approved to treat paroxysmal nocturnal hemoglobinuria (PNH), from a once-daily injection. It is questionable whether the data support this conclusion. 

In the phase 2 trial, Akari gave Coversin to five patients with PNH. Among the four patients who stayed on the drug, levels of lactate dehydrogenase (LDH) were between 2.4 and 7.5 times the upper limit of normal (ULN) at baseline. LDH levels fell to between 1.3 and 1.8 times the ULN during the course of the 90 day study.

The Edison report claimed the data amounted to Coversin matching Alexion’s drug. Soliris won approval in the indication in 2007 on the strength of data showing it cut LDH levels from 2,032 units per liter (U/L) to 239 U/L in 26 weeks. Figures for the ULN of LDH vary from source to source. But using the 223 U/L cited in research by Alexion, the data translate into an eculizumab-driven drop in LDH from 9.1 times ULN to 1.1 times ULN.

Edison's report put the ULN figures for two Soliris trials at 9.9 times at baseline and 1.5 and 1.3 times post treatment. The comparability of the post-treatment ULNs from the Coversin and Soliris trials appears to underpin Edison's conclusion about the significance of the data, despite the major differences in the size of the studies and baseline characteristics of the patients. 

Akari made no claims about how Coversin compares to Soliris on the strength of the phase 2 data in its press release to disclose the results.

The fallout from the inaccurate report could affect both companies. Edison is primarily funded by the companies it covers, a business model that has raised concerns about conflicts of interest. Speaking in defense of the model in 2014, Neil Shah, director of research at Edison, told the Financial Times “my business would blow up if we wrote bad-quality product.”

Edison released a statement this morning, saying: “Edison’s analysts follow a strict and extensive review process prior to the publication of any report, including the April 26, 2017 note on Akari.

“Edison’s analyst team carried out the Edison Process, including engaging the client, Akari, to review and provide feedback on the report and notify us if any inaccuracies or misrepresentations appeared in the final draft of the Note. Following a review of the report by Akari’s senior management, Edison was provided with specific written approval for the publication of the Note as published.

“Following the publication of the Note on April 26, 2017, Akari management contacted Edison to notify that “certain errors” were found in the Note without providing Edison with further explanation regarding the alleged errors. Akari management subsequently requested Edison retract the Note and announced “material inaccuracies” were found in the Note.

“Despite an in-depth investigation, Edison has yet to find any evidence of inaccuracies nor have details of any alleged inaccuracies been provided by Akari representatives, despite multiple requests from Edison and by Edison’s legal counsel, Barton LLP, to Edison's legal counsel.”

For Akari, the situation leaves it without its CEO and with the distraction of the investigation at a time when it should be working flat out to get Coversin into phase 3 in PNH by the end of the year.

Akari shares fell 20% in after-hours trading.