Proteostasis’s credibility slowly unwinds

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Some investors probably laughed at how Proteostasis blamed yesterday’s cancellation of a $45m equity offering on “market conditions”, but this euphemism has actually been stretched a lot further in the past.

The bar was set in 2005 when Voyager Pharmaceuticals used it to explain why it scrapped an IPO; court documents later alleged that its chief scientific officer had threatened to wreck the float because Voyager had refused to add “the glorification of God” to its mission statement. While Proteostasis has not entered such bizarre territory its setback does suggest broader problems.

Indeed, the cancellation of the proposed nine million share fund-raising, which had been announced the previous day, came as the culmination of growing disquiet about the company. The detonating event was yesterday’s publication of an extremely negative report on Proteostasis by the investment firm Kerrisdale Capital, which is short the stock.

As such, Proteostasis blaming “market conditions” is not, strictly speaking, incorrect. But the conditions related to the market specifically for Proteostasis – whose stock tanked 26% in response to the Kerrisdale report – rather than biotech in general, which continues in exuberant mood to raise healthy amounts of cash from investors and trade buyers alike.

Proteostasis itself had benefited from this kind of exuberance, its stock climbing 75% last week after the US FDA granted its lead asset, PTI-428, breakthrough therapy designation for treating cystic fibrosis. In December it had raised $43m net after reporting positive data from a 28-day study of PTI-428 in subjects receiving Vertex’s Orkambi.

However, shortly afterwards doubts started to spread about the real efficacy of PTI-428 in this setting. This centred on the comparator arm, which comprised just four subjects, who it turned out had deteriorated far more rapidly than would normally have been expected, and whose poor performance opened up the opportunity for PTI-428 to demonstrate superiority.

The disappearing study

Proteostasis next had to repeat the trick in a 14-day trial of PTI-428 in patients on another Vertex drug, Kalydeco.

The readout of this study, however, kept being delayed, first from the third quarter to the second half of 2017, and then to the first quarter of 2018, before being left out of the company’s fourth-quarter financials presentation entirely. Last week’s annual report to the SEC stated only that Proteostasis was “studying PTI-428 in a 14-day ... study in patients on background Kalydeco”.

Its fund-raising prospectus made no mention of the Kalydeco trial, and the sellside, too, largely stopped referring to it, making it evident that it had been deprioritised; Proteostasis later confirmed to EP Vantage that this was in fact the case. 

The long delay suggests that the group might have seen trends in the blinded data that had led it to believe that the trial was a dud, something that formal readout would have confirmed – a finding, if true, that could have impeded Proteostasis’s ability to raise cash.

Proteostasis now says the Kalydeco study results "will be reported later in 2018", but that trials of double and triple combinations of in-house assets are being prioritised.

Combinations are becoming increasingly important in cystic fibrosis, and in addition to PTI-428 Proteostasis has the early-stage projects PTI-801 and PTI-808. However, it significantly lags even such players as Galapagos, not to mention Vertex itself (JP Morgan preview – Galapagos fires first shots in cystic fibrosis battle, January 3, 2018).

Proteostasis says it vehemently disagrees with the conclusions in the Kerrisdale report. But even if Kerrisdale’s claims are baseless the mere fact that Proteostasis is so far behind the leading player raises questions about its strategy.

At least, with $74m of year-end cash and equivalents, the group is not in desperate need of money.

Proteostasis's clinical trials
Project Trial ID Status
PTI-428 28-day study in 56 subjects on background Orkambi NCT02718495 Completed, positive vs control
PTI-428 14-day study in 16 subjects on background Kalydeco NCT03258424 Deprioritised
PTI-428 CFTR amplifier in 88 volunteers NCT02846142 Recruiting
PTI-801  CFTR corrector in 120 subjects  NCT03140527 Recruiting
PTI-808 CFTR potentiator in 60 subjects NCT03251092 Recruiting
Source: Clinicaltrials.gov.

This story has been updated to incorporate a response from Proteostasis.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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