Kerrisdale’s Sahm Adrangi leads a brutal new biotech short attack as trial results loom

Kerrisdale Capital’s Sahm Adrangi has called a couple of recent biotech disasters in advance. Just two months ago his prediction that Bavarian Nordic’s cancer vaccine would flunk a long-running study proved accurate, and that came right on the heels of Sage’s ugly misfire on SRSE demonstrating that the drug was no better than a placebo in getting a response.

Sahm Adrangi

Now the influential hedge fund manager has got a new biotech in his sights, and this morning he’s pulling the trigger on another short attack, blasting the company’s lead drug as an absolute failure in the making.

The biotech is Prothena $PRTA and the drug is NEOD001, an AL amyloidosis drug which figures prominently in a market cap that has swelled well past the $2 billion mark.

According to Kerrisdale analysts, the Phase I/II study for this drug failed to show any promise. Pointing to expert — though unnamed — figures in the field, the data from the looming Phase IIb and Phase III studies will prove the drug’s worthlessness beyond any doubt.

“It’s clear that this has no chance of success,” Adrangi tells me. “Both studies are going to flop.”

Any expectations of success, they add, are built on random responses for the NT-proBNP biomarker that are likely to happen at any time in any case.

To be sure, Kerrisdale’s mission is clear here — and it’s also controversial in a market that often singles out shorts for criticism. Having predicted a catastrophe in the clinic, it’s now betting that Prothena’s shares will tank, and if it does they stand to profit enormously. But in a field where anonymous short attacks are a dime a dozen, Kerrisdale’s Adrangi goes public with his gambles, and the reasons why he’s gone on the offensive. They represent the polar opposite of the sell-side notes, which often gain widespread attention for rosy scenarios.

Prothena’s shares dropped 8% on the report this morning.

I’ve queried Prothena execs for a response as Kerrisdale’s report hit Wednesday morning.

Kerrisdale’s short reports — they also go long on occasion — are typically harsh and Prothena is no exception. Some key points:

  • “Prothena’s “best response” is an uninformative measure that substitutes variance for efficacy, and Prothena provides this in lieu of meaningful data because NEOD001 does not work.” The report cites one patient who had to drop out of the study after a dangerous development, but was still counted as a success. And Kerrisdale accuses Prothena of hiding bad data.
  • “Prothena’s cardiac best response rate is merely a byproduct of well-documented natural variance, and we believe there is no chance of NEOD001 producing statistically significant results in its current Phase 2b and Phase 3 trials.”
  • There was no dose response rate tracked and no way the drug can beat the responses seen in a control arm.
  • The science is bad. “The proteins and amyloid structures vary between patients and even among amyloid deposits within a single patient far too much for a single cryptic epitope to work with any consistency.”

And they even go after Neil Woodford, a backer who has also invested in Northwest Biotherapeutics, now trading as a penny stock.

Prothena recently wrote off a psoriasis drug after a disappointing Phase Ib, bluntly calling the data a disappointment. But Adrangi and his analyst say they had no choice in the matter, calling it impossible to mask.

Kerrisdale takes no prisoners during these attacks.

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Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT
Director of Operations
Atlas Venture Cambridge, MA

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