Why Some Investors May Still Look at Prothena, But With Very Different Views

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Creating a treatment for a rare disease or rare disorder can come with massive upside if the treatment is successful. That said, the risk is that a company can implode if its rare disease treatment fails in a drug study. Now it looks as if Prothena Corporation plc (NASDAQ: PRTA) is on the verge of implosion based upon how its stock price reacted.

Prothena took it on the chin with a drop of 69% on Monday after news that the company discontinued its NEOD001. With a drop to $11.42, Prothena still has a market cap of about $440 million and the company’s balance sheet was at $417.6 million in cash at the end of 2017.

The reality is that there is actually enough left inside of Prothena that some investors will still be willing to take a look at the long-term valuations here. That said, it seems hard to imagine that there is any scenario at all that those optimistic investors will be anywhere close to as excited as they were just last week.

It has to be assumed that Prothena, if biotech history has any weighting here, is going to be sued by investors looking to recapture some of that cash. A look at Prothena’s drug pipeline shows that there are still candidates that could be alive. Unfortunately, those may be years away from generating any partnership revenues if they turn into approved drugs. And the company will greatly eat into that cash as it begins to focus more on the rest of its pipeline.

A separate report from Reuters showed that Woodford Investment plans to be working with Prothena on its strategy beyond NEOD001 in AL Amyloidosis (immunoglobulin light chain amyloidosis). According to one analyst report on Monday, Prothena’s lead development program is Roche-partnered PRX002 in Phase II for Parkinson’s disease, with PRX004 in preclinical development for ATTR amyloidosis. Prothena was also shown to have three additional development candidates in discovery as part of collaboration with Celgene.

Wedbush Securities slashed its target price to $13 from $46 on Prothena after the drug company discontinued its NEOD001 program following clinical failures of the Phase IIb PRONTO study and a futility analysis of the Phase 3 VITAL study. The new $13 price target is derived from recognizing the value of near-term milestones for PRX002 from Roche and by valuing the company’s cash per share.

Prothena was also downgraded to Hold from Buy at Jefferies, with a price target slash to $12 from $100.

In a competing call, Prothena was downgraded to Sector Perform from Outperform at RBC Capital Markets.

Prothena shares now have a 52-week range of $11.05 to $70.00 and it has a been a public stock since the tail end of 2012.

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