April 23, 2018 / 2:00 PM / 7 months ago

Woodford-backed biotech Prothena plunges as key drug fails

LONDON (Reuters) - Shares in Prothena, a biotech company backed by British investor Neil Woodford, plunged 70 percent on Monday after its main drug for treating a rare disease called AL amyloidosis failed in a crucial clinical trial.

As a result, Prothena is discontinuing development of the antibody-based medicine for the condition.

The news is a win for short sellers who have targeted the stock but a fresh setback for Woodford, one of Britain’s best-known fund managers.

Shares in his Woodford Patient Capital Trust, which has an 8.56 pct stake in Prothena, fell more than 10 percent.

Jefferies biotech analyst Michael Yee said the failure of Prothena’s drug, known as NEOD001, was the worst-case scenario and removed the overwhelming enterprise value in the stock, suggesting the shares could fall to the level of cash in the company.

With some $480 million in the bank, that would amount to around $12 a share. The Nasdaq-listed stock, which closed at $36.84 on Friday, was trading at $11.15 in early dealings on Monday.

Woodford acknowledged the trial result was “undoubtedly a blow” but insisted Prothena had options.

“Prothena still has an early and mid-stage clinical pipeline. It has a technology platform and a world-leading specialism in misfolding proteins, which are implicated in a number of different neurological disorders,” he said.

Dublin-based Prothena, which was spun out of Irish drugmaker Elan in 2012, specializes in developing immune system-based drugs to fight progressive diseases.

NEOD001, its lead product, is an antibody drug for AL amyloidosis, a serious condition caused by a build-up of an abnormal protein called amyloid that impairs proper tissue function. It can lead to heart, kidney and other organ failure.

There is currently no cure and NEOD001 had been granted orphan drug designation by both the U.S. Food and Drug Administration and the European Medicines Agency.

However, hedge funds Kerrisdale Capital and Muddy Waters had both targeted the company by taking short positions in its stock in the belief that the drug would not work.

Holding a such short positions means hedge funds will now profit from the share fall.

Reporting by Ben Hirschler; Editing by Alexander Smith

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