Short Seller's Case on AnaptysBio: Bad Data and CEO Resume Snafu

(Bloomberg) -- On Wall Street, AnaptysBio Inc. is a crowd-pleaser. Seven of eight analysts covering the drug developer rate it a buy, and the shares have soared more than 380 percent since going public last year.

That much unanimity is a temptation to short sellers, and at least two have spoken up. One is famous: Carson Block, founder of Muddy Waters Research, who on Thursday tweeted pictures showing the CEO didn’t sign a statement in a September filing. The signature was back in the latest one.

Less well-known is Joseph Lawler, founder of JFL Capital Management, which manages $180 million in Lakeway, Texas. According to him, the San Diego-based biotech is framing clinical data in a way that disguises shortcomings in etokimab, its lead experimental drug for several diseases. His views were presented at the Robin Hood conference in New York last week. Lawler declined to comment further.

Lawler is betting against the stock so it’s no surprise he would make debatable assertions about his target. One of his claims is true, though. AnaptysBio’s website and regulatory filings erred when they said CEO Hamza Suria has a Bachelor of Science degree from Kalamazoo College. Actually, it’s a Bachelor of Arts. The error was a typo and got fixed on the company’s website after Bloomberg News asked about it, according to Dominic Piscitelli, the chief financial officer. Another degree listed on the website was accurate.

AnaptysBio is evaluating two drugs in five clinical indications, including a common type of eczema, known as atopic dermatitis, and a severe form of asthma. If successful, the treatments could potentially generate billions of dollars in sales, analysts say. The company also has partnerships with Celgene Corp and small-cap biotech Tesaro Inc. for other experimental drugs.

Lawler’s suspicions date back to a trial the company has already abandoned -- an investigation of etokimab in treating peanut allergy, which the company discontinued in August after it reassessed the market. In short, Lawler says, the company took liberties when it tweaked the population of patients used in its test, a red flag that in extreme cases can connote experimental shenanigans.

Analysts have raised the issue with the company in the past. RBC analyst Kennen MacKay downgraded the biotech to the equivalent of hold on concerns related to that data. For its part, AnaptysBio says the tweaks were good science based on evolving information about the trial subjects, and that it will be more careful with the way it picks patients in the future.

Lawler, who has a medical doctorate from Johns Hopkins (confirmed by its office of the registrar), also questions why the company has released some but not all the data in a separate study into asthma -- giving results for only about half the days in a 127-day trial. AnaptysBio has indicated that it plans to release that data at a medical conference next year.

The short seller has had success with past bets. He recommended betting against London-based IP Group PLC. Those shares are down about 31 percent since his call in 2016.

AnaptysBio shares have been under pressure since March, when the company posted results from the peanut trial. Investors got another surprise on Thursday, as the company delayed its data readout for a different drug evaluated for the treatment of the skin disease pustular psoriasis. The stock fell as much as 16 percent Friday, the most since June 2017.

Short interest is hovering around 15 percent of free float, according to financial analytics firm S3 Partners.

Still, bulls are steadfast. JMP’s Konstantinos Aprilakis, who holds the second-highest price target at $153, says it’s premature to reach conclusions about the lead drug, etokimab, because the medicine needs to be studied in a larger set of patients. "There’s still a lot more to be seen from this asset," he said in a telephone interview.

--With assistance from Melodie Warner and Meghan Genovese.

To contact the reporter on this story: Tatiana Darie in New York at tdarie1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Chris Nagi, Jeremy R. Cooke

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