Kerrisdale Capital, Sahm Adrangi’s New York based hedge fund, disclosed today that it had taken a short position in Prothena Corporation plc, a late-stage clinical biotechnology company based in Dublin that develops novel protein immunotherapies.
The investment firm issued a research report explaining why it believes why Prothena’s lead pipeline asset, NEOD001, has zero chance of succeeding in its ongoing Phase 2b/3 trials, and calls the company “the next big biotech blow-up.”
Led by founder and chief investment officer Sahm Adrangi, Kerrisdale is known as a short activist that publishes research on overvalued or misunderstood companies in the hopes that the research would cause stock prices to fall. The eight-year-old firm stands to benefit should prices decline.
NEOD001 is an investigational disease-modifying agent that targets abnormal antibodies in tissues in patients with AL amyloidosis. In AL amyloidosis, plasma cells from bone marrow produce light chain proteins that misfold, resulting in the formation of amyloid light-chains. These insoluble, abnormal antibodies are deposited in tissues and organs as amyloid, interfering with normal function and potentially causing organ damage and failure.
NEOD001’s intended purpose is the binding to and removal of amyloid deposits. NEOD001 reacts only with a “cryptic” epitope found on misfolded light chains but not in ordinary light chain proteins. However, Kerrisdale confirmed with amyloidosis experts familiar with NEOD001 and its reported results that there are simply too many variations in amyloidogenic proteins that cause AL amyloidosis. 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. Those experts, including researchers involved with the development of antibodies for AL amyloidosis, are highly skeptical that NEOD001 works.
According to Kerrisdale, Prothena’s public NEOD001 Phase 1/2 trial results confirms Kerrisdale’s thesis by showing no dose response and no apparent improvement in patients over time. Kerrisdale believes that the biotech company’s ongoing Phase 2b and Phase 3 trials will be no different and that Prothena will fail.
Kerrisdale is known among the investment community for its large short in 2016 against DISH Network, where it raised $100 million just to bet against the telecom company, and in 2014 against satellite communications company Globalstar, where it created a commercial teasing the short and rented out an auditorium for its 2.5 hour-long presentation.
Kerrisdale further argues that radio imaging studies for other antibodies targeting AL amyloid fibrils have consistently shown no activity at all in the heart even when there is antibody activity in other organs—the key target for NEOD001 to achieve its primary endpoints in its ongoing trials. Kerrisdale points out that Prothena conspicuously opted against publishing such a radio imaging study for NEOD001.
Prothena spun off from Elan in December 2012 and its stock has climbed over 700% since then.
Investment management firm Kerrisdale typically publishes on healthcare, telecom, and mining companies, but has also published on tech and other sectors. Prothena follows a string of attacks against biotech companies. Kerrisdale’s website shows that the most recent short-thesis reports on healthcare companies were on Pulse Biosciences, Sage Therapeutics and Zafgen, and a long-thesis report on Adamas Pharmaceuticals.
Kerrisdale has a strong following on Twitter where it also discusses its research.
We’re short $PRTA. Report available at https://t.co/sFH7zdYjhw. Main drug NEOD001 has no effect on patients and no chance of clinical success. Conf call 10:30am (888-567-1602, reference Kerrisdale call)
— Kerrisdale Capital (@KerrisdaleCap) November 8, 2017
About Sahm Adrangi and Kerrisdale Capital Management: Sahm Adrangi is the founder and Chief Investment Officer of Kerrisdale. Adrangi is best known for his short-selling strategies, which was the foundation of Kerrisdale Capital’s founding in 2009. Headquartered in New York City, Adrangi’s firm Kerrisdale Capital Management publishes research, such as the recent November 2017 Prothena Corp. report. His firm’s published research seeks to correct broadly held misconceptions about companies’ fundamental business prospects. Kerrisdale publishes its research on their company website, third-party investing-news sites, and Twitter.