Finance Watch: The Curious Case Of Proteostasis' Short Attack

Proteostasis planned to raise cash this week, but scrapped the offering after an investor that shorted the stock published a scathing report. Also, Arena raised more than $350m in an offering after its positive Phase II etrasimod data, and venture capital flows to biopharma firms with big ideas.

Public biopharmaceutical companies have had few problems raising significant cash in 2018, but Proteostasis Therapeutics Inc. withdrew a planned offering of 9m shares on March 20 after an investor with a short position in Proteostasis stock launched an attack on the company's credibility.

Cambridge, Mass.-based Proteostasis announced its proposed offering on March 19 when its stock closed at $6.99 per share, which was a premium over its March 12 closing price of $4.14. The stock had been trading higher in recent days after the company revealed breakthrough therapy and orphan drug designations from the US FDA for PTI-428, a cystic fibrosis transmembrane conductance regulator (CFTR) amplifier and one of three cystic fibrosis treatments Proteostasis has in the clinic. However, the company's stock sank 26.2% to $5.16 on March 20 after Kerrisdale Capital's attack.

Kerrisdale stated at the start of its report, titled "Don't Hold Your Breath," that it was a short investor, meaning it would profit if Proteostasis' stock fell. However, the firm went on to say that the company's Phase II results for PTI-428 were not as positive as they were made out to be in December and the report criticized Proteostasis for selective reporting of preclinical and clinical data. (Also see "Pipeline Watch: Phase III Readouts For Talazoparib, Ampion, Avatrombopag" - Scrip, 18 Dec, 2017.)

"Contrary to Proteostasis' hype, we believe that its Phase II results are far less meaningful than they appear. The main reason that PTI-428 looks good is not that patients who received it performed unusually well, but that the four placebo patients to whom they were compared performed unusually poorly," Kerrisdale argued. "Judged by a more reasonable benchmark, PTI-428 seems to do little – echoing an earlier, more obviously disappointing Phase I trial in which the drug yielded no statistically significant improvement in lung function."

Proteostasis, which went public at $8 per share in 2016, hasn't responded to Kerrisdale's claims other than to withdraw its proposed offering, because "current market conditions are not conducive for an offering on terms that would be in the best interest of its current stockholders." (Also see "Year's First 4 IPOs Go South As Proteostasis, AveXis Launch" - Scrip, 12 Feb, 2016.)

The company may have time to wait for a rebound in its stock price before pursuing another offering, since it had $74.5m in cash as of Dec. 31, including $42.9m in net proceeds from an offering that closed in December. Proteostasis said in its full-year 2017 earnings report on March 14 that the year-end cash balance was viewed as sufficient to fund operations through early 2019.

Upcoming milestones that could boost the company's stock include results in the second quarter of 2018 from a study of the CFTR corrector PTI-801 in combination with Vertex Pharmaceuticals Inc.'s Orkambi (lumacaftor/ivacaftor), which combines a CFTR corrector and a CFTR potentiator. Data also are due in mid-2018 from a study testing PTI-801 and the CFTR potentiator PTI-808.

Proteostasis also plans to start two more combination studies this year. One will test PTI-428 with Vertex's Symdeko (tezacaftor/lumacaftor/ivacaftor) to support potential FDA approval of the drug as an add-on to approved therapies. That study is expected to begin in the second half of 2018 and generate data by early 2019.

Before then, however, Proteostasis will launched a triple combination study of PTI-428, PTI-801 and PTI-808 in the first half of 2018 with preliminary results expected in the second half of this year. The company said its trial design has been endorsed by the Therapeutics Development Network (TDN) and the Clinical Trial Network (CTN), which are the drug development arms of the Cystic Fibrosis Foundation (CFF) and the European CF Society (ECFS), respectively.

Proteostasis reorganized last year to focus its resources primarily on the development of its three cystic fibrosis drugs. (Also see "Finance Watch: Semma Raises $114m As VC Funding Keeps Up Brisk Pace" - Scrip, 4 Dec, 2017.) The company's stock regained some of its value on March 21 closing at $5.47, but closed down 1.5% at $5.39 on March 22.

Arena Rises, Prices Big Offering

Arena Pharmaceuticals Inc. was up 33.3% when its closed at $41.18 on March 22, compared with its $30.89 stock price at the start of the week. The company enjoyed a surge after reporting Phase II results for etrasimod in ulcerative colitis, which it thinks show etrasimod to be a better drug than Celgene Corp.'s later-stage competing S1P receptor modulator ozanimod.

San Diego-based Arena's CEO Amit Munshi told Scrip in January that the company's next fundraising event probably would occur to pay for the next stage of development for one of its clinical programs after reporting positive mid-stage data. (Also see "Arena Rises With Post-Belviq Pipeline" - Scrip, 30 Jan, 2018.) Arena followed through with a March 21 offering of 8.5m shares priced at $41.50 each for $352.8m in gross proceeds before overallotments.

The cash will fund Phase III development of etrasimod and pulmonary arterial hypertension candidate ralinepag as well as preclinical and clinical development for other assets. (Also see "Arena Rises, But Raises Questions With Phase II Ralinepag Data In PAH" - Scrip, 11 Jul, 2017.)

Other recent public company financings include:

• Xencor Inc. priced 7.3m shares at $31 each on March 20 for $226.3m in gross proceeds before overallotments. The capital will fund the Monrovia, Calif.-based company's pipeline of monoclonal antibodies for autoimmune diseases, asthma and allergic diseases, and cancer, which were developed using its XmAb technology. Xencor has 11 programs in the clinic, including partnered assets. (Also see "Immuno-Oncology 2.0 Roundtable: Emerging Players Eye Crowded Field" - Scrip, 3 Mar, 2017.)
• DBV Technologies SA is holding steady despite a competing peanut allergy product reporting positive Phase III results last month, so it raised cash in both the US and EU on March 21. The company offered 2.78m American Depository Shares (ADSs) at $21.26 per ADS and initiated a private placement of 2.14m shares in Europe at €34.71 per ordinary share for $150m in gross proceeds (€122.5m). DBV is pushing ahead with development of Viaskin Peanut despite negative Phase III results in October that cut the company's US stock price by more than half. (Also see "DBV Technologies Misses With Viaskin Peanut Allergy Patch" - Scrip, 23 Oct, 2017.) Nevertheless, DBV's share price has held steady in the low $20 range since then, even after Aimmune Therapeutics Inc. said in February that it would seek approval for its peanut allergy product AR101. (Also see "Aimmune Accelerates Commercial Planning For Peanut Allergy Drug " - Scrip, 20 Feb, 2018.)
• Rockville, Md.-based GlycoMimetics Inc. revealed the design of its Phase III clinical trial for GMI-1271 in the treatment of acute myeloid leukemia (AML) on March 5 and on March 20 the company priced an offering of 7m shares at $17 each for $119m in gross proceeds before overallotments. GlycoMimetics will use the cash primarily for the 380-patient late-stage study, which will test the company's E-selectin inhibitor versus placebo in combination with the MEC (mitoxantrone, etoposide and Ara-C) or FAI (fludarabine, cytosine arabinoside and idarubicin) chemotherapy regimens for the treatment of relapsed or refractory AML. The trial will begin in the third quarter or 2018 and top-line data are expected in late 2020. Updated Phase II results were reported in December. (Also see "Pipeline Watch: Phase III Readouts For Talazoparib, Ampion, Avatrombopag" - Scrip, 18 Dec, 2017.)
• Vanda Pharmaceuticals Inc. grossed $93.5m before overallotments from the March 15 offering of 5.5m shares at $17 each. The Washington-based company will use the cash for general purposes. Vanda most recently reported positive Phase III results for Hetlioz (tasimelteon) in the treatment of jet lag disorder. (Also see "Pipeline Watch: Phase III Starts With NSR-REP1 Gene Therapy, ALLN-177 And BIVV009" - Scrip, 9 Mar, 2018.)
• Rockville-based CASI Pharmaceuticals Inc. raised $50m in a private placement of 15.43m shares priced at $3.24 each. The transaction – led by ETP Global Fund LP, IDG-Accel China Growth Fund III and former Pharmacyclics Inc. Chairman and CEO Robert W. Duggan – had accompanying warrants for the future purchase of 6.17m additional shares. CASI will use the proceeds to prepare for the launch of its first product in China, the alkylating agent Evomela (melphalan) for multiple myeloma, licensed in 2014 from Spectrum Pharmaceuticals Inc. for that market. (Also see "BioNotebook: Six deals and a name change; Spectrum/CASI, Five Prime/GSK and more" - Scrip, 19 Sep, 2014.) Evomela is under priority review in China. CASI also recently acquired a portfolio of generics from Novartis AG's Sandoz Inc. (Also see "Deal Watch: Sanofi Finds Ideal 'Partner' For Leukine" - Scrip, 1 Feb, 2018.)

VC Investors Back Big Ideas

Venture capital investors continue to place big bets on biopharma start-ups and early-stage drug developers with big ideas, such as Unity Biotechnology Inc., which said on March 19 that it closed a $55m Series C round to fund ongoing development of drugs that slow, halt or reverse the effects of aging. The company came out of stealth mode in late 2016 with a $116m Series B round, which grew to $151m with an additional $35m close in August. (Also see "Finance Watch: 2Q Brings Cost Cuts, Strategic Reviews For Many Biotechs" - Scrip, 18 Aug, 2017.)

San Francisco-based Unity is developing drugs that are designed to selectively eliminate senescent cells – cells that have stopped dividing – for the treatment of aging-related diseases, such as osteoarthritis, eye diseases and pulmonary diseases.  (Also see "Led By Former Kythera Executives, Unity Raises $116m To Make Aging Less Painful" - Scrip, 2 Nov, 2016.) The company will use the proceeds to take its senolytic medicines into human trials.

Unity's new investors include EcoR1 Capital Fund, 6 Dimensions Capital and Altitude Life Science Ventures. Existing investors Fidelity Management & Research Company, Baillie Gifford, Partner Fund Management, Pivotal Alpha Limited, Invus Opportunities, ARCH Venture Partners, Venrock, Founders Fund and the Longevity Fund also participated in the Series C round.

The financing came during a week in which TCR2 Therapeutics Inc. closed a $125m Series B round to fund the development of T-cell receptor (TCR)-based therapies, which could be safer and treat more patients than chimeric antigen receptor T-cell (CAR-T) therapies (see sidebar).

Also, Rheos Medicines Inc. raised a $60m Series A round from Third Rock Ventures to pursue the big idea of correcting dysregulated metabolism inside of immune cells for the treatment of autoimmune and inflammatory diseases as well as cancer. (Also see "Perfect Pitch: Rheos Raises $60m To Tune Immune Cells In Autoimmune Diseases" - Scrip, 22 Mar, 2018.) And twoXAR Inc. closed a $10m Series A to use artificial intelligence in drug development. (Also see "AI Drug Developer TwoXAR Raises $10m In Series A" - Scrip, 19 Mar, 2018.)

Finally, Baltimore-based Dracen Pharmaceuticals Inc. closed a $40m Series A round to take drugs from its immuno-metabolism pipeline into clinical trials enrolling cancer patients. Deerfield Management provided $36m of the financing, which will support the development of glutamine antagonists discovered at Johns Hopkins University and the Institute of Organic Chemistry and Biochemistry of the Czech Academy of Sciences (IOCB Prague). The drugs seek to disrupt the metabolism of cancer cells and will be tested as single agents as well as in combination with PD-1/PD-L1 inhibitors.