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Woodford-backed Prothena dealt fresh blow after exit

Woodford-backed Prothena dealt fresh blow after exit

Prothena (PRTA.O), the Nasdaq-listed biotech company backed by fund manager Neil Woodford, has been dealt a fresh blow after its chief medical officer resigned just nine months into the job.

The late stage clinical biotech company’s shares have fallen 30% since chief medical officer Sarah Noonberg announced her resignation at the end of last week. On Friday, Prothena was trading at $27.95 per share, down significantly from a high of $75.31 in November 2015.

Noonberg will provide transitional support until 15 March, after which point her predecessor Martin Koller will return temporarily on a consulting basis. While no reason was given for her departure, the timing is awkward because the Irish company is due to publish initial results during the second quarter from its phase two ‘Pronto’ study for a drug that treats rare disease amyloidosis. 

Prothena is the second largest position in the £633 million Woodford Patient Capital Trust (WPCT),  accounting for just over 9% of the portfolio at the end of December. It also represents 2.6% of the £8.3 billion open-ended Woodford Equity Income fund.

Prothena’s share price has come under pressure since November when US hedge fund Kerrisdale launched a short-selling attack. Kerrisdale claimed that it was ‘certain’ that the biotech stock’s flagship drug would fail and could signify ‘the next big biotech blowup’. Soon after Prothena delayed the phase III study read-out for another drug it was testing to treat amyloidosis from the first half to the second half of 2018.

At the time, Woodford publicly defended Prothena, claiming that the delay was ‘the wrong thing to focus on and the wrong conclusion to draw’. In January, he also told investors at a conference in London that Kerrisdale’s claims were ‘totally inaccurate and unsubstantiated’.

House of cards

The size of Woodford’s position – he holds nearly 30% of Prothena shares - means he would struggle to  reduce it quickly if there was bad news on the drug trials.

‘Given that he will have to disclose his sales because his position is so large, as he sells down every hedge fund in the world will be shorting the stock ahead of Woodford’s sales. There is very little chance that he will be able to realise any value from his holding,’ said one investment manager on condition of anonymity.

Prothena currently has a stock market value of $1.1 billion. It has a projected ‘cash burn’ of $142 million to $152 million from operating and investment activities. Having raised money via share issues six times in the last five years, investors expect it will call on them again to continue development of its key drugs. 

Woodford Patient Capital - an investment trust focused on early stage healthcare and technology companies – has endured a difficult 12 months. Its share price is down 17.2% over the past year and 25.8% over the past six months alone. Its net asset value is down 11.8% and 20.4% over the same respective time periods.

Over the past week, the trust has been caught up in the sharp sell-off affecting markets across the world, which has been fuelled by fears of higher interest rates and inflation. Woodford Patient Capital's shares have fallen by 7.2% over the past week.

With the shares currently trade close to 9% below the depressed NAV, investors will hope that Woodford's faith in Prothena is rewarded.

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