INNATE IMMUNOTHERA NPV (OTCMKTS:INNMF) is doing the rounds at the moment across mainstream financial media despite its market capitalization of just $10 million. Generally, the likes of the New York Times and the Wall Street Journal wouldn’t look twice at a company of this size, but certain mitigating circumstances, specifically a number of the company’s backers, have made this one interesting to the outside observer.
Here’s what happened, and what’s next.
The company is an Australian microcap biotechnology stock that was trying to bring an asset to market called MIS416. It is a multiple sclerosis (MS) target that seeks to treat the secondary progressive form of the disease, a form that is generally considered more serious than the initial onset of relapsing-remitting MS and is widely prevalent among sufferers, with the vast majority of MS patients developing secondary progressive MS within a lifetime. It’s a large unmet need and one for which the current standard of care therapies are considerably lacking in both efficacy and tolerability across the patient population.
From a scientific point of view, this drug seeks to control the excessive immunoactivity that characterizes multiple sclerosis and brings about the vast majority of its symptoms. Data from a bunch of early-stage trials suggested efficacy and safety and optimism was relatively high heading into the latest news, which was topline data from a phase 2B study of the asset in the secondary progressive MS population. The trial enrolled around 62 patients, randomized them to active and control arms and then assessed the impact of the drug using various industry-specific severity scales rooted in neuromuscular function and patient-reported outcomes.
As per the data, the drug doesn’t work, at least not in this population, with no significant difference between the active and placebo arms recorded across a variety of different endpoints, including an analysis of the expanded disability status scale (EDSS), an analysis of percentage brain volume change, and a comparison of both the Multiple Sclerosis Impact Scale and the Neurological Fatigue Index.
So, not a great outcome and markets responded accordingly – the company currently trades at around a 90% discount to its prerelease market capitalization.
Of course, this happens all the time in biotechnology and especially in a tough to treat population such as that of multiple sclerosis. Why then, is Innate garnering such a degree of mainstream attention?
Well, the company had a roster of very high profile backers, comprising primarily of Republican lawmakers in the US. Innate’s largest investor was Rep. Chris Collins, R-N.Y., a member of a subcommittee overseeing health policy, who is reported to have lost just shy of $17 million on paper on the back of the decline. Other backers include Reps. Markwayne Mullin of Oklahoma, Billy Long of Missouri, Mike Conaway of Texas, and Doug Lamborn of Colorado, each of which claims to have invested based on personal due diligence, but it’s not unreasonable to assume that there is some degree of influence from Collins, especially given that he has been widely and openly talking up the company over the past six months or so.
Some of the company’s backers were fortunate (at least to a degree) and got out ahead of the crash.
Secretary of Health and Human Services Tom Price owned Innate shares, which he disclosed at his confirmation hearing, but that he sold his shares back in February. Additionally, Rep. John Culberson of Houston also took a small position (somewhere in the region of $13,000) and sold for a $9,000 loss on June 12, a couple of weeks before the data hit press.
So, while this is a small biotechnology company, the reason it is attracting so much media attention is that six or seven high-profile Republicans have taken considerable losses on the decline and, moreover, one of these Republicans (Collins) has been talking up the company ever since he first picked up his holding. Democrats, as expected, are jumping all over the situation as indicative of bad judgment on the part of the lawmakers in question.
So what’s next?
Well, there looks to be little room for recovery for the stock, given that its asset failed completely across all endpoints. There is some forward analysis set to take place based on certain biomarkers, but we be surprised if these biomarkers brought about any joy for Innate and its backers.
An interesting situation but one that those involved are almost certainly going to have to chalk up as a loss and move on.