An update on Prothena

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Neil Woodford 22 November 2017 Est. reading: 7 min read

There is demand for an update on our view of Prothena, following recent coverage and last week’s R&D day. This isn’t a response to any particular note. Research is published on a range of stocks every day, covering a range of different views – we haven’t commented on them in the past, nor do we intend to start now. It is simply an update on where we are today, with a focus on the opportunity for NEOD001 in the rare disease, AL Amyloidosis.

Background

A comprehensive write-up on the background to the investment in Prothena can be found in last year’s company spotlight.

The position in Prothena – and indeed the conviction in the investment case that has contributed to the size of the holding – is the product of a long-standing relationship with the company and its management team, which pre-dates its existence as an independent company (it was spun out of Elan in 2012 at a share price of about $7 and it has been invested in the funds I have managed ever since). In turn, this has allowed me to build a very good understanding of the science that lies behind Prothena’s therapeutic assets and the progress that these assets are making through the clinic.

It is worth remembering that the position size in the funds is also partly the product of the positive share price performance seen from the stock over the last three-to-four years, despite the continued, and increasingly vocal, presence of short positions. I can understand that the publication of negative research can be disconcerting for investors but please bear in mind that the share price today, even after the recent setback, is higher than the average price at which we bought the shares (average book price for WEIF = c. $35, WPCT = c. $40, current share price = c. $46 1).

What has changed?

In last week’s R&D day, Prothena gave a series of confident, evidence-based presentations to update shareholders on its progress. Despite a lot of positive, reassuring information in the presentations across a range of its late-stage and earlier-stage assets, the market appears to have focused on a delay in its Vital Phase III study read-out – a pivotal trial investigating NEOD001 in AL Amyloidosis – as a key negative.

I believe this is the wrong thing to focus on and the wrong conclusion to draw.

There are two ongoing late-stage trials in NEOD001 in AL Amyloidosis (Pronto and Vital). Without wishing to get bogged down in the science, the Pronto trial has been designed to align with feedback from the European Medicines Agency (EMA), with the biomarker ‘NT-proBNP’ as a primary endpoint. The Vital trial, meanwhile, has an event-based primary endpoint. Whilst both are ‘blinded’ studies (in which the data is not disclosed to patients, clinicians or the company until the trial completes), Prothena were able to provide some limited information on their progress, which I have summarised below.

Pronto

Pronto is a Phase IIb study, which remains on track, due to read out in Q2 2018.

  • Prothena reported the baseline characteristics of patients enrolled, which were nearly identical to the those in the prior Phase I/II study – whilst this does not inform us of any likely outcome, it is encouraging and reaffirms our conviction that the study should read out positively
  • The prior trial (Phase I/II) treated 69 patients in total – the patients enrolled had a range of specific organ dysfunctions (heart, kidney, peripheral neuropathy) and across the board, the data was excellent with organ responses of 53%, 63% and 82% respectively
  • Relating the prior trial to Pronto’s primary endpoint, it is the cardiac patients that are most comparable – there were 36 patients with cardiac involvement and 19 of them (53%) met the primary endpoint of a cardiac response
  • Pronto has been powered to be a success if patients show a 26.5% better response rate than the placebo (the control group in the study) – it was originally intended to be a 100 patient study but due to patient demand, Prothena over-enrolled so the study is now treating 129 patients
  • The gap between the response rate seen in the Phase I/II study and the response rate required to deliver success from Pronto, provides a considerable margin of safety against a placebo response, as does the fact that AL Amyloidosis is a progressive disease in which patient symptoms are worsening
  • Success in the Pronto trial would likely lead to EU approval

Vital

Vital is a US Phase III study. Previously expected to read out in H2 2018, Prothena announced at its R&D day last week, that has been pushed out to H2 2019. Having spent some time trying to understand the causes of this delay, I am very encouraged about the progress of this trial.

  • The primary endpoint in this trial is not related to the NT-proBNP biomarker – it is based on the time taken for ‘events’ – in this instance, cardiac hospitalisation or death – to occur
  • The original trial timeline appears to have been guided by the largest (>2,000 patients) collection of AL Amyloidosis patient data available
  • The announcement of a one-year delay to the primary endpoint means that events are not occurring as fast as Prothena had expected
  • This can only be for two reasons
    1. The standard of care has improved (or is better than the dataset had suggested)
    2. NEOD001 is working
  • On standard of care, we know that AL Amyloidosis patients are generally living longer than they used to but that should have been captured by the dataset on which the original trial timelines appear to have been based – we do not believe that anything meaningful has happened to change the standard of care since the trial commenced
  • The R&D day also contained new information about patient baseline characteristics in the Vital trial, which showed that it includes a greater proportion of more severely affected patients, in which the disease has progressed further
  • One should expect events in these patients to occur faster – but the trial read out, however, has been delayed by a year because events appear to be occurring slower than anticipated
  • Overall, therefore, in my view, the delay of the Vital trial read-out is a very promising sign that NEOD001 is working

Prothena: the journey so far

Source: Bloomberg, Woodford

The company was established (spun out from Elan)DECEMBER 2012Prothena releases encouraging trial data from its phase I/II study for NEOD001 JULY 2016Prothena hosts R&D day, highlighting breadth of novel pipelineNOVEMBER 2017 Prothena announces initiation of Pronto, a phase llb trial for NEOD001OCTOBER 2015Prothena initiates Vital, a phase III trial for NEOD001DECEMBER 2014Woodford Patient Capital Trust’s first investment in ProthenaAPRIL 2015 Woodford Equity Income Fund’s first investment in ProthenaJUNE 2014Prothena reports results from phase Ib study for PRX002, its potential disease-modifying treatment for Parkinson’sNOVEMBER 2016 Prothena initiates its phase II Pasadena study for PRX002, triggering $30m milestone payment from Roche JULY 2017$7$46

Prothena: the journey so far

Source: Bloomberg, Woodford

Conclusion

I rate the Prothena team very highly – it’s expertise in misfolded proteins and central nervous system disease biology is, in my view, second to none. It is extremely rare to see a biotech so swiftly and so successfully progress from the pre-clinical to the pivotal trial stage.

The business is fully-funded to deliver on the significant value inflection points that lie ahead, with NEOD001 poised to do that in the near future. No external factors can affect that now.

There is no such thing as certainty in the world of investment and I have never and would never claim that there was. However, my conviction in the long-term Prothena investment case is as strong as it ever has been.

What are the risks?

  • The value of investments and any income from them may go down as well as up, so you may get back less than you invested
  • Past performance cannot be relied upon as a guide to future performance
  • The annual management charge applicable to the funds is charged to capital, so the income of the funds may be higher but capital growth may be restricted or capital may be eroded
  • The funds may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits
  • The funds may invest in overseas securities and be exposed to currencies other than pound sterling
  • The LF Woodford Income Focus Fund will be invested in a concentrated portfolio of securities – the fund is not restricted by reference to any geographical region, sector or market capitalisation
  • The LF Woodford Equity Income Fund may invest in unquoted securities, which may be less liquid and more difficult to realise than publicly traded securities

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