VBL Therapeutics (VBLT) and Celsus Therapeutics (CLTX) each announced disappointing Phase 2 results for their respective drug candidates in inflammatory indications on Tuesday morning. Both biotechnology companies IPO’d in 2014. CLTX is down 80% from its IPO prices while VBLT has dropped >50% in the Tuesday session, now trading in line with its IPO price last October.
VBLT’s lead compound VB-201, a lecinoxoid (similar to oxidized phospholipids), actually underperfomed relative to placebo in both psoriasis and ulcerative colitis. VBLT will discontinue development in these indications, and the company will shift focus to advancing VB-111, a gene-based biologic candidate targeting angiogenesis, into a Phase 3 trial for recurrent glioblastoma.
VBLT has an interesting pedigree. In its August 2014 IPO, VBLT’s largest shareholder, the Keffi Group, which was also one of the key investors in the company’s earlier private financing rounds, decided not to buy half of the proposed offering as previously agreed. Deutsche Bank and Wells Fargo subsequently cancelled the deal after the stock had already begun trading publicly. This is an extremely rare move even though the banks believed that they could re-price the shares because the shares hadn’t formally settled. In a subsequent IPO attempt in October 2014, led by Deutsche Bank, the IPO was re-priced at $6/share (vs. $12 in August) and VBL raised $34.4M to finance its two clinical programs through the end of 2016. The amount raised was significantly below the approximately $60M initially planned in August. These missteps undoubtedly cast doubt on VBLT’s ability to execute, and the data this Tuesday are yet another setback for the small company.
Meanwhile, Celsus’ lead candidate, MRX-6 Cream 2%, failed to improve symptoms of atopic dermatitis compared to placebo in a Phase 2 study. CLTX cited an unusually high placebo response in the study. While it is unclear what CLTX has planned for this compound in the future, it seems unlikely that CLTX will launch a planned second trial in atopic dermatitis, which was scheduled to begin this quarter.
Celsius offers a good case study for investors who pay close attention to the holdings of large biotech-centric hedge funds. CLTX had among its IPO participants Baker Bros and Broadfin Capital, both of which are regarded as leaders among healthcare investors. With CLTX off 80% since the IPO, these funds have clearly not done well on this small position. Simply following the “smart money” isn’t always a winning strategy for the average investor.
