Rocked by short attack, Proteostasis withdraws stock offering

Wall Street sign
Proteostasis said “market conditions are not conducive for an offering." (Natalie Murphy)

Proteostasis Therapeutics has canned plans to sell shares after seeing its stock drop 26% in the wake of a short attack. The biotech unveiled plans to sell 9 million shares hours before Kerrisdale Capital’s attack and abandoned them hours after it hit.

When Proteostasis filed to raise the money on Monday afternoon, its stock was riding high following the receipt of a breakthrough designation for cystic fibrosis candidate PTI-428. By the end of trading the next day, most of the gains Proteostasis made on the back of the FDA status had disappeared as investors downgraded their expectations in response to Kerrisdale’s report on its lead drug. 

The stock drop has deterred Proteostasis from pushing ahead with the planned offering. Proteostasis said “market conditions are not conducive for an offering on terms that would be in the best interest of its current stockholders” without referring directly to Kerrisdale’s attack.

Cambridge, Massachusetts-based Proteostasis had earmarked the cash raised through the offering, which could have pulled in upward of $60 million, for preparations for late-phase trials of its cystic fibrosis candidate. A phase 3 program is due to start next year, and Proteostasis needs to produce trial materials and fund “critical path activities” in anticipation of initiating the study.

The question now is how long it will be before Proteostasis is able to get an offering away at a price it deems acceptable. A long wait could affect Proteostasis’ ability to execute its clinical trial strategy.

Proteostasis closed out 2017 with $30 million in cash and $45 million in short-term investments. Deprived of the anticipated stock offering receipts, Proteostasis faces the prospect of moving toward a cash-consuming late-phase program with a relatively meager bank balance. The stock recovered some of the prior losses in premarket trading following news the share sale had been abandoned.