Kerrisdale predicts failure for Prothena rare disease medication in short attack

Wall Street
The firm has in the past made similar short attacks on Allied Minds and Sage.

Sahm Adrangi’s Kerrisdale Capital Management, known for its activist short positions, has given Elan spinoff Prothena the unwanted title of the “next big biotech blowup.”

Specifically, the firm says in a report out today, “We are certain that its lead asset, NEOD001, will fail its ongoing phase 2b and phase 3 trials.”

This experimental mAb targets the circulating soluble and deposited aggregated amyloid that accumulates in patients with AL amyloidosis, and can cause organ damage and failure.

The 29-page report lays out why the firm, which has a short position in Prothena, thinks the company is doomed to fail: “Prothena is focused on a meaningless endpoint in its phase 1/2 trials, cardiac best response, which refers to the single largest change in its biomarker, rather than the change over a specified period of time.

“The problem with this is that the biomarker is known to change significantly from month to month, and this high variance will naturally yield seemingly attractive best responses, even though the drug doesn't actually work.

“Originally, Prothena measured the response over a fixed period of time (i.e., have patients improved after six or 12 months of taking the drug), but the data came out unfavorable, so the company re-focused on the best response metric.

“In the phase 1/2 trial, there is no observable dose or duration response; taking a higher dose or over a longer duration doesn't improve the results, further indicating that the drug doesn't actually work.”

The report also says that humanized antibodies for AL Amyloidosis “haven't worked in the past and do not work in the case of NEOD001, because amyloid deposits are very heterogeneous, and both concealment and degradation of the target cryptic epitopes result in the antibody being unable to meaningfully bind to the epitopes to work properly.”

It adds that the biotech could have have “easily done” a radioimaging study to show activity in the heart, but it “either chose not to or never disclosed the results,” according to the firm.

Kerrisdale has form when it comes to betting against companies and taking its case public. Its short activist short positions include Sage and Zafgen, as well as Allied Minds.

RELATED: Sahm Adrangi's hedge fund ridicules Sage Therapeutics' rare disease drug in short attack

The biotech has a market cap of around $2.3 billion and was spun out of Elan back in 2012, and around 30% of its shares are owned by Neil Woodford, the once-star investor whose light has dimmed over the past year. He also invests in Allied Minds, making this the second Woodford-backed life science company Kerrisdale has gone after.

In the report, the firm makes hay of his problems, pointing out Woodford’s buying up of a 28% stake in Northwest Biotherapeutics, a company alleged to have engaged in a paid stock-promotion scheme and currently under SEC investigation.

It also points out that Woodford holds 28% of Allied Minds; it published negative views on the company two years ago, and the stock has dropped by more than 60% since. On Prothena, the firm says: “Neil Woodford has bid the price up, but history shows the Woodford effect does not last.”

The biotech has had a mixed year in terms of data; in April, it saw positive early-stage data from a Roche-partnered program that aims to find a disease-modifying therapy for Parkinson's disease.

The drug—called PRX002—targets alpha-synuclein, a protein that is garnering increasing attention among Parkinson's disease researchers. It’s now moving into phase 2.

But in September the company was hit when it decided to abandon a T helper (Th) cell-targeting drug after it failed to hit the mark in a phase 1b study in psoriasis—and despite earlier data indicating it could also be a treatment option for multiple sclerosis.

The PRX003 antibody—which targets the MCAM cell adhesion molecule (also known as CD146) on Th cells—was actually able to demonstrate it was having the desired biological effect in the 33-patient trial, but that didn’t translate into any “meaningful clinical benefit” for psoriasis patients.

The biotech is also working on PRX004, a candidate for rare disorder transthyretin-mediated amyloidosis (ATTR amyloidosis), which is expected to enter phase 1 next year.

The company's stock was down 8% at the open on the report. Prothena was not immediately available for comment.