The Evidence Builds Against This Recent Biotech IPO

study published yesterday in PLOS Biology offers a damning assessment of recent IPO PTC Therapeutics’ (PTCT) lead candidate ataluren. PTC began trading on the Nasdaq last Thursday and closed its public offering this Tuesday after selling 9,627,800 shares of common stock at a public offering price of $15.00. Shares of PTC Therapeutics, by their third day of trading on Monday, had climbed 17% to $17.54, and the company carries a market capitalization of $415M — an enterprise value of less than $250M accounting for the company’s post-IPO cash balance.

Ataluren, says PTC, targets nonsense mutations to correct the underlying cause of a genetic disorder. Nonsense mutations are alterations in the DNA sequence of a gene that cause the ribosome to prematurely translate the gene transcript before a full-length, active protein can be produced. Ataluren is supposed to help the ribosome skip over the premature stop and restore production of the functional protein. The obvious and hot target here is Duchenne Muscular Dystrophy (think Sarepta Therapeutics’ (SRPT) exon-skipping eteplirsen), which is exactly where PTC is running clinical trials, along with Cystic Fibrosis.

The in vitro study, outlined in “A Lack of Premature Termination Codon Read-Through Efficacy of PTC124 (Ataluren) in a Diverse Array of Reporter Assays“ raises some real questions about the drug’s mechanism of action. The study was published by researchers at the University of Dundee who identified Ataluren’s lack of efficacy during their own read-through agent discovery program. Here’s the 5-second takeaway (emphasis is our own):

Following the discovery of PTC124 [ataluren] there was some controversy regarding its mechanism of action with two reports attributing its activity to an off-target effect on the Firefly luciferase (FLuc) reporter used in the development of the molecule. Despite questions remaining as to its mechanism of action, development of PTC124 continued into the clinic and it is being actively pursued as a potential nonsense mutation therapy. To thoroughly test the ability of PTC124 to read through nonsense mutations, we conducted a detailed assessment comparing the efficacy of PTC124 with the classical aminoglycoside antibiotic read-through agent geneticin (G418) across a diverse range of in vitro reporter assays. We can confirm the off-target FLuc activity of PTC124 but found that, while G418 exhibits varying activity in every read-through assay, there is no evidence of activity for PTC124.

But there have been additional red flags that something wasn’t quite right with the therapy. The drug failed a Phase 2b trial as a treatment for DMD in 2009. The drug also failed a Phase 3 trial in CF that was completed in 2011. Nevertheless, PTCT has pushed forward with both programs based on subgroup analyses of the failed trials. The company initiated a randomized, double-blind, placebo controlled Phase 3 trial in 220 DMD patients and says that the study population and outcome measures used in the Phase 3 trial are based on the post-hoc subgroup analysis of the Phase 2b study. The retrospective subgroup analysis showed a much larger treatment effect in mean change in 6-minute walk distance between ataluren and placebo in this subgroup (younger DMD patients) than in the overall population. In CF, PTC is planning a Phase 3 trial to evaluate the efficacy and safety of ataluren in approximately 210 patients with CF caused by a nonsense mutation. The trial is based on a subgroup analysis of patients not receiving inhaled aminoglycoside antibiotics in the previous Phase 3. PTC claims that the inhaled antibiotic tobramycin interfered with ataluren’s mechanism of action.

PTC filed a marketing authorization application with the EMA in October of 2012 for conditional approval of ataluren as a treatment for nmDMD. In its 120 day response this March, the EMA identified “major objections” regarding insufficient evidence of efficacy based on the single Phase 2b clinical trial, uncertainties about the effective dose, and questions about whether the confirmatory Phase 3 trial for this indication could be continued if the EMA grants conditional approval. Tellingly, the EMA informed PTC back in May of 2012 that although ataluren falls within the scope of the regulation for conditional approval, “it appeared unlikely that a positive risk-benefit assessment for ataluren could be concluded primarily based on the results of our completed Phase 2b clinical trial.” PTC actually filed a New Drug Application with the U.S. FDA in 2011 for nmDMD, which the agency refused to file, a relatively rare occurrence. When PTC filed a formal dispute, the regulatory body upheld its previous decision.

It’s these kinds of stories that we file away for a revisit further down the road as there’s now a growing body of evidence against ataluren’s success in any of its ongoing clinical trials, and we’re interested in what a trade might look like as readouts from those trials approach. The Phase III DMD trial won’t read out until mid-2015 at the earliest, but based on the timing of PTCT’s 120 day letter from the EMA and expectations for a response, an EU decision on conditional approval in DMD should occur by the end of this year. PTCT currently has no options listed, but we expect an EMA rejection and will be watching for a trade closer to the end of this year, or as options become available — mark your calendar. The stock is down 7.5% in early trading Wednesday.