Shares in Irish drugmaker Prothena (PRTA) dived 70% to a near-five-year low on Monday after it scrapped the development of its headline drug thanks to a mid-stage trial failure.
The news dealt a further blow to fund manager Neil Woodford. Prothena has been the largest holding in Woodford Patient Capital Trust (WPCT) for most of the year. As a result, WPCT shares also slipped yesterday and are down by 11%.
Prothena ceased developing its main NEOD001 drug, which it was hoping would help to treat the rare and often fatal AL amyloidosis disease, after it missed both its primary and secondary endpoints.
Both Woodford and the company’s chief executive Gene Kinney described the news as “disappointing”. The result was surprising. Just two weeks ago, Lydia Haueter, investment manager of the Pictet-Biotech fund, said initial data had been “promising”. That said, it was always going to be a binary outcome, she cautioned.
Still, as is his wont, Woodford backed Prothena, pointing out it has other irons in the fire. He also noted the firm has more than $500 million on its balance sheet so it well funded. However, with shares now trading at $11.5, its market cap has slipped below its cash position, to $444 million.
Its research platform is “extremely valuable”, according to Woodford. Its drug pipeline also includes a potential treatment for Parkinson’s disease, in partnership with US pharmaceutical giant Roche, which is in Phase 2 trials; and three pre-clinical drugs that have been backed by Celgene in a $2.2 billion deal.
“Those two major deals are very attractive … there’s a lot more to Prothena than [NEOD001] and this has been a cornerstone to our investment thesis,” he added.
He said he would characterise the news as “a missed upside opportunity” and that, had the trial been positive the company’s immediate future would have been “very exciting”.
“The reading was negative, of course, and that upside potential has been cancelled out. But the underlying value of the business is resolute … we will remain supporters of the business,” he continued.
Prothena’s been under pressure for a while now. While its share price is still around double its flotation value after yesterday’s slide, the stock is 85% below its November 2015 high of $76.
Short-Selling Attacks
It’s been criticised by hedge funds Kerrisdale Capital and Muddy Waters, which Haueter brushed off as short-selling attacks. Woodford also slammed the claims as “inaccurate and unsubstantiated”. But it seems the short-sellers have been proven right.
They criticised Prothena for not releasing its initial data on NEOD001, with Muddy Waters criticising its efficacy and Kerrisdale claiming the firm had supressed negative results.
Muddy Waters also questioned “defensive statements” by Prothena’s chief financial officer and insiders’ lack of skin in the game; while Kerrisdale claimed it was “the next big biotech blow-up”.
In February the share price fell almost a third after chief medical officer Sarah Noonberg quit. Haueter said the news scared investors because Prothena “didn’t do a good job in terms of managing the communications around it”. However, while the timing was not good, Haueter said she was confident Noonberg did not leave because of poor data readings.
The Pictet Biotech fund only has a small holding in Prothena – just 0.8% of the fund’s assets – as opposed to Woodford’s 7.75%. “For us, diversification is key because if you have 5% of Prothena in your portfolio and it doesn’t work out then you’re not a happy camper,” Haueter said.
For Woodford, it compounds a plethora of bad news stories his investee companies have seen in the past year or so. WPCT floated at 100p three years ago, quickly rising to 120p within four months.
Shares had re-rated by 18% in the past five weeks since it hit an all-time low of 70p, but yesterday’s blow means they are now trading at 76p.
In his full-year 2017 review, Woodford said Prothena’s announcement “should not overshadow the progress many of the portfolios companies have made”. “There are many businesses in this portfolio that I believe should become multi-billion-dollar organisations within the next five years,” he claimed.
