Forte fields demand to liquidate from top shareholder who says latest asset came 'out of thin air'

Forte Biosciences’ top shareholder is calling on the biotech to close up shop before it pours money into a brand new lead asset, saying the compound appears to have come “out of thin air.”

The demand from Brad Leonard, managing member of BML Capital Management, was disclosed in a 13D form filed Tuesday.

The investment firm had previously filed a similar 13G form in late April. However, that’s reserved for passive investors rather than activists. Leonard’s decision to jump into the driver’s seat was instigated by Forte’s recent push to develop a brand new compound, FB-102, months after its previous lead asset failed in clinic. In a letter to CEO Paul Wagner attached to the 13D disclosure, Leonard says that asset came out of nowhere.

“Where is there any evidence that this compound, which, again, seemed to appear out of thin air, has any odds of success?” he wrote, adding that months of additional R&D work on a new compound would leave the company “thinly capitalized and in an even more precarious position than today.” 

In a brief interview with Fierce Biotech, Leonard elaborated, saying the company’s newfound ambitions are a waste of shareholder capital. 

“It’s not smart the way they’re handling this,” he said. “No one who invested in this company did so to have this other secondary asset...we’re going to get it into the clinic in 2023? It doesn’t make any sense.” 

Forte’s decision to pivot comes after lead asset FB-401 failed in a phase 2 atopic dermatitis clinical trial in September 2021. At the time, Wagner said the company would be updating investors on its future “over the next several months.” Leonard says that the first time he had heard about FB-102 was in the company’s 10-K released at the end of March

According to Forte’s first-quarter earnings report, the company has enough cash to last “at least the next 24 months” while it pursues clinical relevance for the new asset. FB-102 is currently indicated for four different diseases, including alopecia, graft-versus-host disease and celiac disease. 

Forte went public in February 2020 after acquiring Tocagen and raised $46 million in a public offering later that year. But in 2021, the company spent almost $17 million without any additional fundraising. According to the latest earnings report, Forte has roughly $40 million in cash and investments. Wagner did not respond to an emailed request for comment by the time of publication. 

Leonard said that after speaking with Wagner last week, it did not appear the company seriously considered liquidating and de-listing from Nasdaq. He added that he’s not yet spoken to Wagner since his disclosure.