“The whole is greater than the sum of its parts,” goes the famous quote attributed to Aristotle. But biotechnology company Elan didn’t see it that way when it split up its business units recently.
In late December, Elan (NYSE: [[ticker:ELN]]) of Dublin, Ireland spun off its early stage drug discovery unit, now named Prothena (NASDAQ: [[ticker:PRTA]]). Elan concluded that the two separated companies would each be worth more alone than they would be together. Prothena’s research unit is based in South San Francisco, though the company is incorporated in Ireland.
Elan has been streamlining its operations over the past year, selling most of its stake in its former manufacturing business, reducing debt, and phasing out its once substantial R&D facility in South San Francisco. The “demerger’’ of the Prothena discovery science unit leaves Elan free to focus further on increasing revenues for its flagship product natalizumab (Tysabri), the multiple sclerosis drug it co-markets with partner Biogen Idec (NASDAQ: [[ticker:BIIB]]).
Elan, whose revenues on US sales of Tysabri in the third quarter of 2012 were $230.5 million, expects to become profitable through the demerger and other moves. Prothena’s early R&D costs won’t be counted among Elan’s operating expenses, and Elan will also reduce its tax burden through phased deductions for accumulated losses of about $4 billion.
So, Prothena now stands on its own—an unusual discovery-stage startup that was launched as a publicly traded company with a rich initial fund of $125 million from its former parent company. Elan, which contributed cash and IP to Prothena, retains an 18 percent interest in the newly created company, whose other shares went to Elan shareholders. Each received one share of Prothena for every 41 shares they held in Elan.
Prothena is focusing on monocolonal antibodies designed to clear the body of misfolded or abnormal proteins that have been implicated in blood disorders and in neurodegenerative illnesses including Parkinson’s disease and Alzheimer’s disease. Other antibodies in the company’s portfolio attack molecules linked to inflammatory disease, cancer, diabetes, and Alzheimer’s.
Prothena CEO Dale Schenk, the former chief scientific officer at Elan, says the promise of Prothena’s drug pipeline will be more visible to investors now that the company is “out from under the umbrella of the Tysabri effort.” Progress on those R&D projects might move the share price of Prothena, while any such advances probably wouldn’t have budged Elan’s share price when the same research was still being carried out by Elan’s wholly-owned subsidiary, Neotope, in South San Francisco. The Neotope programs were absorbed by Prothena.
Prothena’s opening price was $8.10, according to Elan’s SEC filing on Dec. 21, 2012, when the demerger was completed. Trading on the NASDAQ exchange opened at $6.75 on Dec. 27. Prothena shares closed at $6.00 on Jan. 8.
Schenk says a typical spinout wouldn’t begin with an amount like $125 million to draw on. “It allows us to make significant progress without going back and spending time on fundraising,” Schenk says.
Prothena’s staff of about 35 includes veterans of the same team that developed Tysabri at the former South San Francisco company Athena Neurosciences, which was acquired by Elan in 1996. Schenk says he was the second employee hired by Athena, which was founded in 1986.
Prothena’s drug candidates were all “home-grown” within Elan’s former research units, Schenk says. The lead candidate, NEOD001, is an antibody designed to flag damaging deposits of proteins so they can be cleared away by the body’s scavenger cells.
NEOD001 attacks the problematic amyloid proteins found in two related diseases called systemic amyloidoses. The first disease is primary amyloidosis, a blood disorder in which plasma cells produce misfolded amyloid proteins that form deposits in various organs. About 1,200 to 3,200 new cases arise in the United States each year, Prothena estimates. The company received an orphan drug designation for NEOD001 from the FDA in 2012, and expects to begin a Phase I trial early this year for treatment of
