Sahm Adrangi and his SWAT team at Kerrisdale Capital have put another biotech in their cross hairs.
The high-profile biotech investor — who’s taken on a group of biotechs that range from Bavarian Nordic to Prothena with a series of brutal short attacks — is now ready to call Proteostasis’ $PTI work on cystic fibrosis a bomb in the making.
“We looked at it,” Adrangi tells me, “and decided to take a closer look after it spiked” in the wake of the FDA’s breakthrough drug designation.
Regulators put the Cambridge, MA-based company on its inside regulatory track, promising to provide an open-door approach to helping speed it along, after the biotech posted data for its CFTR amplifier PTI-428, part of a cocktail it’s been developing in hopes of capitalizing on the market that Vertex has been building for itself.
The biotech reported Phase II data demonstrating that their drug was linked with a 5.2% jump in a measure of lung performance.
In Kerrisdale’s view, though, that is nonsense. What really happened, Kerrisdale analyst Shane Wilson claims, is that the tiny placebo arm involving just 4 patients in the study had a sharp, sudden and unexpected drop in lung performance during the 28-day trial that created a gap favoring the drug. And when you compare it with what you would expect for these patients, there should not normally have been anything like that gulf between the two small arms of the study.
“If placebo was flat and the drug was up 1%,” says Wilson, “no one would think that was good.”
From the report:
On average, we calculate that the PTI-428 group improved by just 2.5%, while the (4-person) placebo group worsened by 6.7% – exactly replicating Proteostasis’s stated placebo-adjusted relative improvement of 9.2%. In terms of absolute changes, we estimate that the PTI-428 group improved on average by just 1 percentage point, while the placebo group worsened by 4 percentage points.
And that’s not something that can be replicated in a larger trial.
The rest of the data points — like sweat chloride — are either messy or being ignored by Proteostasis, adds the Kerrisdale team.
“They don’t give the actual results, which means almost certainly that the results aren’t good; probably because they didn’t do anything.”
From their report:
Given the scarcity of CFTR mRNA and protein even in the airway epithelium, we doubt that Proteostasis can reliably measure its favored biomarkers, calling into question its fundamental understanding of its own drug. Indeed, we find it difficult to trust the company’s data, given its tendency to gloss over potentially negative facts. For instance, while a group of partially independent researchers have recently found that, in one in vitro model, PTI-428 failed to increase CFTR protein levels or functionality to a statistically significant degree, either on its own or when added to standard-of- care drugs, Proteostasis management has ignored the unpleasant results, even though three Proteostasis employees were co-authors on the paper.
Without a lead drug or a pipeline, Kerrisdale says the company can only be worth cash, a 70% to 90% drop in value.
There is little value in PTI’s misleadingly spun data, bizarrely noisy biomarkers, and selectively disclosed results. Alas, it’s far easier to inflate weak data than it is to inflate ailing lungs.
The short attack arrives just hours after Proteostasis laid out plans to take advantage of its swelled share price by selling 9 million shares, with Leerink and RBC Capital acting as joint book runners. Its shares were down 13% in pre-market trading and then kept sliding after the Kerrisdale report hit. By mid-morning shares were down 20%.
While quite a few short attacks tend to arise from anonymous reports or by way of a Trojan horse, Kerrisdale likes to do their work publicly and up close. They recently earned some considerable criticism from investor Neil Woodford, who said:
Their job is to scare the market when the market is prepared to be scared. It doesn’t matter if what they said about Allied Minds and Prothena is totally inaccurate and unsubstantiated. What matters is Bloomberg and others giving them the oxygen of publicity and hey presto there is a self-fulfilled prophecy and the share price falls.
Prothena’s data are coming up in the second quarter.
Sahm Adrangi. KERRISDALE CAPITAL
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