When you are heavily invested in a stock and a short report is released targeting your major revenue stream or investments it is not a nice feeling. Many of us Strawpeople would have experienced this before. One example was February 2021, when J Capital Research released its short report on Nearmap. Thankfully this report was easily refuted. The company's share price recovered quickly. 

Thank you @mikebrisy for linking this short report see here (Culper Research Short Report).  Great summary @Slideup.

Perhaps it is best to read this document from back to front. I think a short report is an excellent opportunity to pay attention to your investment thesis. I decided to take a few hours to go through the report, FDA website and latest research, as well as follow the money and really think about my position. I will have confirmation bias which I am trying to logic my way through and full disclosure I took this 15% drop on Friday as an opportunity to buy a few more shares in my already overweight position in Neuren Pharmaceuticals. 

My immediate thoughts that lead to this purchase were:

1.     I know this stock, the drug works, I have done my due diligence (DD), I follow social media accounts and I am seeing the positive effects of the drug in real time.

2.     The science works and Acadia plus other unnamed pharmaceutical companies were in a race to buy the rest of world rights to Daybue and they all would have done their DD

3.     Neuren has a second drug that is likely much more valuable than Daybue and has had recent outstanding phase 2 results for its trial in Phelan McDermid patients. The drug also has fewer side effects than Daybue

4.     There are 3 more impending phase 2 trial results for Neuren’s second drug which will act as short term catalysts

5.     I know that there a sharks circling who may use unscrupulous methods to absorb more Neuren or Acadia stock or apply pressure on the share price as we know Neuren is a current acquisition target

The Culper short report targeting Acadia Pharmaceuticals released on friday was unexpected. I am curious whether Acadia or its licencing partner Neuren was specifically the target of this report. It is possible that Culper may have had an incentive to quickly wind up a potential short position in Acadia. A quick short and distort attack can induce panic selling and allow a shorter to quickly get out before they are caught in a financial disaster. 

Acadia had two positive updates recently: 

1)    Acadia recently won its patent litigation for Nuplazid - giving the company further protection from generic competition into the future and preserving revenue growth of the drug. 

2)    On the 9^th of January 2024 Acadia reported an increase in guidance for Q4 from $80 million to $87.5 million for its sales of its newest drug Daybue.

Given the above points, anyone with a short position was likely to be in trouble come the February 28^th, 2024 when Acadia released its financials. The share price would likely respond positively to this upcoming announcement. 

The 8% drop following this reports release could have been an exit strategy or perhaps Culper really has increased its short position. However US analysts covering Acadia obviously didn’t think the report held much water as there was a full share price recovery on the same day. 

The Report

The Culper report is full of hyperbole and emotive language – examples in the report assert that Daybue has been a total flop.

The report uses phrases such as horror stories to describe the stories spreading through the Rett community regarding Daybue.

The report also takes aim and Acadia’s credibility itself suggesting a downplaying of adverse events  by the company and that 1 in every 10 to 11 patients who use Daybue end up in hospital. 

Firstly, a total ‘flop’ of a drug doesn’t see such fast uptake and increasing revenue. Nor does a pharmaceutical company who is expecting sharp declines in uptake and increases in discontinuations pay such a hefty premium for the rest of the world rights for a drug. 

With regard to the FDA Adverse Event Reporting System or (FAERS), this is a public post-drug release monitoring system. This database does not analyse the cause of hospitalisations or separate the cause from the drug or the disease. 

Daybue is not a cure for Rett and ongoing health conditions and vulnerabilities from the disease will continue. There is no comment or comparison of standard hospitalisation rates for patients with Rett Syndrome versus hospitalisation rates for Rett patients on Daybue in the report. Acadia has been very clear that side effects and dosing management and assistance is a crucial part of successful treatment while on Daybue. It advised all patients to start on low dosing levels and titrate up as side-effects are managed.

FDA Adverse Event Reporting System (FAERS)

The FDA website states:

“Most common adverse reactions, occurring in at least 10% of Daybue-treated patients and twice the rate of placebo, included diarrhea (81%) and vomiting (27%).”  See here (FDA reported Daybue Side Effects)

Culper report alternatively states “nearly everyone” experienced adverse events on Daybue. My interpretation of Culper’s statement is that the research house may be taking the total number of reported adverse events in the FDA database, which is 1115 cases and ascribing this as if everyone on Daybue has reported an adverse event. 1005 reports of diarrhea were made in the database and that is likely where they are falsely arriving at the >90% prevalence of diarrhea amongst those taking Daybue. 

However as seen below the FAERS does not work like that. Reports are not verified, multiple reports may be in the system and causation cannot be linked to the drug. This is clearly stated on the FDA website. 

Furthermore there was no black box label assigned to Daybue. This is given to drugs: 

‘’when serious adverse reactions or special problems occur, particularly those that may lead to death or serious injury.” (according to the FDA website)

Furthermore the FAERS database has the following statements attached:

  1. Duplicate and incomplete reports are in the system: There are many instances of duplicative reports and some reports do not contain all the necessary information.

2. Existence of a report does not establish causation: For any given report, there is no certainty that a suspected drug caused the event. While consumers and healthcare professionals are encouraged to report adverse events, the event may have been related to the underlying disease being treated, or caused by some other drug being taken concurrently, or occurred for other reasons. The information in these reports reflects only the reporter's observations and opinions.

3. Information in reports has not been verified: Submission of a report does not mean that the information included in it has been medically confirmed nor it is an admission from the reporter that the drug caused or contributed the event.

4. Rates of occurrence cannot be established with reports: The information in these reports cannot be used to estimate the incidence (occurrence rates) of the events reported.

Patients should talk to their doctor before stopping or changing how they take their medications.

The number of adverse events reported by the public for 2023 and 2024 are reported below in Figure 1. Remember these are not causative, there may be duplicate reports and reports have not been verified. 971 events were attributed to 2023 and 144 to 2024 so far. 

Figure 1: FDA screen shot from FAERS database ( Source see here: FDA DAYBUE REPORT NUMBER IN FAERS)

Figure 2: FDA screen shot from FAERS database by reaction type reported by the public (see here FDA DAYBUE REPORTED REACTION TYPE)

As you can see the main reported % events are in green which represents non-serious events. Hospitalisations are a minority of the events recorded. Gastro intestinal disorders are by far the most common non-serious event reported which matches the Lilac study expectations see Figure 3 below. 

Figure 3: FDA screen shot the most commonly reported non-serious Gastro-Intestinal events.

The next most common adverse events reported were issues such as under-dosing, with 494 events reported.  See Figure 4 below. This matches the initial suggestions made by Acadia to start on a lower dose and titrate up as patients began their treatment on Daybue during 2023. 

Figure 4. FDA screenshot of other most common adverse reporting on FAERS relates to dosing. 

We can draw no causative conclusions from FAERS but no life-threatening events have been reported. It was made clear by Acadia and Neuren that Daybue had side-effects and many community support groups offer assistance with this.

A 2023 Epidemiology report paper released in the US offers some better insights into what the average Rett patient experiences. This would have been published just prior to patients receiving Daybue. (see study here).

The authors acknowledge gaps in available data for Rett patients in the US. Highlighting a lack of understanding around the following:

·      Health care resource utilization and

·      Health care costs

Of the Rett patients surveyed nearly 25% had hospital admissions for lower respiratory tract infections in the previous 5 years. Roughly 12% had 2 or more admissions. Unfortunately, there were no % rates for overall hospital admissions given in the study. 

It is difficult to determine then if 1 in 10 or 11 Daybue patients being hospitalised is more or less than the number of hospitalisations expected by Rett complications alone. So the quote in the Culper research report offers no particular insight as there is no context whether Daybue causes higher hospitalisation rates.

The most common clinical manifestations of Rett without Daybue treatment include:

·      Neurological disorders 72.8%

·      Gastrointestinal/ nutritional disorders 41.9%

·      Orthopedic disorders 34.6% 

The authors reported an average of 44.43 health related visits per patient per year. Feeding assistance (37.9%) was the most prevalent supportive therapy required for Rett patients. So gastro-intestinal and nutritional management is definitely part of the Rett treatment pathway whether on Daybue or not. The requirement for anti-epileptic drugs (54.8%) was also a  prevalent support requirement. The conclusion of the above study was that Rett patients had a substantial disease burden. The FDA adverse events reported in the short report very much match the disease burden of a patient with Rett syndrome. 

Gene Therapy

Another example of emotive writing in the report is the title used in the Gene Therapy section. This title eludes to new gene therapies being a potential “harbinger” for Acadia.

Let’s explore:

I agree with the report that there is a limited number of patients with Rett Syndrome.  Hence there is a small population of potential trial subjects to pull from. Gene therapy has been mentioned by Jon Pilcher, Neuren CEO, as a possible treatment, not cure, for Rett Syndrome but a final treatment is years away, if successful at all. It is also something that could be used in conjunction with Daybue so patients can have multiple treatment options. 

Taysha Gene Therapies is currently conducting phase 1 / 2 trials for its TSHA-102 drug in adults with Rett Syndrome. This gene therapy is delivered via injection into the intrathecal space see Image 1 below. This drug regulates MECP2 expression. 

Image 1:  Injection into Subarachnoid space or lumbar areas are the most common delivery pathways for gene therapies. Source (here)

This is obviously a more complicated treatment pathway than an oral dosing in Daybue. The treatment is currently only in adults with Rett’s and the company only plans to run the phase 1/2 REVEAL trial on 2-3 adults. 

Forty-two days following the initial trial the first patient results were released (Taysha Gene Therapy Initial Trial Results). Results on 1 patient were as follows:

4 weeks in:

“Four weeks following the administration of TSHA-102, the patient demonstrated a score of 2 (“much improved”) on a version of the Clinical Global Impressions–Improvement scale adapted to Rett syndrome, an improvement to a score of 5 (“markedly ill”) from a baseline score of 6 (“severely ill”) on the Clinical Global Impressions–Severity scale, and an improvement to a score of 29 from a baseline score of 52 on the Rett Syndrome Behavior Questionnaire. Conversely, on the Revised Motor Behavior Assessment, there were no marked changes at 4 weeks after dosing.”

 6 weeks in:

 “At 6 weeks after administration of the gene therapy, observations of improvement in autonomic function, sleep quality and duration, normalization of night time behavior, and social interest were reported. Gained abilities to sit unassisted for 3 minutes, to hold an object, to unclasp hands, and to use fingers to touch a screen were also noted. At 5 weeks after treatment with TSHA-102, there had been no quantifiable seizure events recorded. “

Study summarized

“Following treatment, we have observed improvements in breathing patterns, vocalization, and motor skills. The patient was able to sit unassisted for the first time in over a decade, and she demonstrated the ability to unclasp her hands and hold an object steadily for the first time since infancy.”

 TSHA-102 was well tolerated in the 1 patient it was trialled on and there were no significant adverse events reported. The second patient is now in the trial. FDA has recently approved a new drug application to commence treatment trials on children in the US. Taysha is also looking to run a trial on children in the UK. 

There will be patients who may struggle or discontinue Daybue who are keen to be involved in a Gene therapy study. However, gene therapy is an unproven treatment that is years away if it proves successful at all. Patients who are seeing improvements will be unlikely to cease Daybue for an unproven treatment. Companies such as Taysha Gene Therapies are likely to struggle to recruit patients as there is an existing FDA treatment available for families with Rett children. There are still potential adverse events of gene therapies that are still unknown.

The short report describes Daybue’s many “short-comings”  and suggests that gene therapy approaches are compelling.

The difficulty with the  statements made by Physician’s quoted in the short report is that the testaments of these doctors largely make up the basis for the justification of Daybue being a flop. In Culper’s very own disclaimer -they acknowledge that these statements may not be fully truthful and are potentially bias and may leave out positive statements. Furthermore doctors were often financially compensated for their statements which they acknowledge might have skewed their report. 

On the 10th of January this year Taysha announced that it was initiating the REVEAL paediatric trial in the US. TSHA-102 was expanded to female patients 5-8 years old. This study would include US, UK and Canada and the first trial was to include 3 children. This would test safety and efficacy of Taysha’s gene therapy in a paediatric population. The results for this study are due mid-2024. See announcement (here)

The dose is a single lumbar intrathecal injection. The studies so far are recruiting very small numbers of Rett patients with n=6. This is hardly going to lead to mass cessation of Daybue by Rett patients in order to participate. 

Clinical Trials.gov website shows that the TSHA-102 Phase 1/2 Trials won't be completed until:

Estimated Primary Completion Date  :

November 2, 2028

Estimated Study Completion Date  :

November 2, 2031

Source (here).

Neurogene Trials

The second gene therapy trial in Rett syndrome also targets mutation in MECP2 gene like Taysha.  The MECP2 protein regulates the activity of genes critical in brain development and function. The NGN-401 therapy delivers a working MECP2 gene. The thought is that a functional gene will lead to normal regulation of activity by the MECP2 protein. It is delivered via an adeno-associated virus (AAV) to deliver the gene inside working cells.

Phase 1/2 clinical trials begun December 2023. Two girls are being treated and it so far is well tolerated. A third patient begins treatment at the beginning of 2024. Efficacy data readouts will be available at the end of 2024. N=5 and girls are between 4-10 years of age. So another very small study. 

There is currently no follow up data available. If the study continues and there are no serious adverse events further recruitment will begin in the second half of 2025. Source (here).

Further Information on the NGN-401 study can be found on Clinical Trials.gov  (here) according to this website: 

“The study is a phase 1/2, open-label study designed to assess the safety, tolerability, and efficacy of administration of an adeno-associated viral vector serotype 9 (AAV9), using Neurogene's proprietary transgene regulation technology. NGN-401 contains a full-length human MECP2 gene which is designed to express therapeutic levels of the MECP2 protein while avoiding overexpression.

The study treatment will be administered under general anesthesia via intracerebroventricular (ICV) delivery. Each participant will be followed for safety and preliminary efficacy for 5 years after treatment and is expected to enroll in a long-term follow-up study for 10 years.”

According to Clinical Trials.gov website Phase 1-2 safety will take up to 10 years to establish which provides a wide moat for Daybue as the only safe and efficacious treatment of Rett. 

As Taysha’s gene therapy is a similar process I imagine this is why Jon has been so unphased during question time on Neuren calls as possible phase III trials may be a decade away. 

The lead time for Daybue seems to be longer than I was actually modelling for. A quick google search reveals these time frames are hardly a harbinger for Acadia as there will still be years before a phase III trial,  if that is ever reached. 

Funding Taysha Gene Therapy

RA capital management is funding Taysha’s Gene therapies to the tune of $150 million. 

About RA capital management:

Assets under management: 9.65 billion USD (March 2023)

Founded: January 2002

Founders: Richard Aldrich; Peter Kolchinsky

Headquarters: Berkeley Building, Boston, Massachusetts, U.S

Interestingly RA capital which is funding Taysha Gene Therapies also had a large stake in Acadia Pharmaceuticals in 2014. 

Funding Acadia 

There are 573 institutional owners and shareholders.

Shares on issue: 169,300,389 

Largest shareholders:  Baker Bros (26%). Vanguard, Black Rock, State Street Corp etc… 

I can’t see whether RA capital still holds any Acadia stock. However in 2016 an Acadia Shareholder suit ended in $15.75 M settlement against RA Capital Management LCC claiming that they colluded with two investors to score millions in short-swing profits from the drug company in violation of the securities laws (source  (here)

The same RA Capital and Peter Kolchinsky that is funding Taysha Gene Therapies. 

Further to this A Fierce Biotech article (here). States that RA Capital is hardly pristine. And has a history of settling with the US Securities and Exchange Commission. In another case they were ordered to pay US$3.6 million in disgorgement, interest and penalties related to 17 instances between 2009-2013,  where they bought shares in stock too soon after selling short the same stock.

“This allows a fund to buy shares in a company offering at a lower-than-market price to cover its short position. This episode highlights a fundamental tension that plagues life science hedge funds between supporting innovative companies and deriving financial benefit--regardless of whether it's to the detriment of those same companies.”

Funding Neurogene pharmaceuticals

Neurogene is a fully owned subsidiary of Neoleukin (Source: here). The merger was completed in December 2023.

“Neoleukin is focused on developing immunotherapies to treat cancer, inflammation and autoimmunity, leveraging its de novo protein design technology.”

 Investors include: Casdin Capital, EcoR1 Capital, Great Point Partners, Janus Henderson Investors, Redmile Group and Samsara BioCapital were among those taking part in the financing round

Rachel McMinn is Neurogene CEO and founder. 

Culper Report Insurance Payment Issues

 Insurance payment issues for Daybue are certainly a valid concern for all investors in Acadia and Neuren on page 11 of the report Culper suggests that Acadia is now facing a wall of discontinuations. They suggest 6/12 insurance re-authorizations are likely to be rejected based on minimal improvements by patients who have been on Daybue. 

Page 13 of the short report discusses issues with insurance plans. This is true of all drugs in the US system and the PBS system in Australia too. To stay on an expensive drug patients have to achieve improvement to justify ongoing costs. This area is challenging for patients to navigate. Acadia has set up help lines to help patient streamline payments from insurers.

I acknowledge this is a risk but I trust that Acadia has a strategy to assist patients navigate these difficulties. Future qrtr growth beyond this 6 month window should certainly help to alleviate investor concerns. 

According to the report numerous insurance plans require an improvement of CGI-I scores of 1 to 3. There is an argument that due to the lower dosing and slower titration up, patients may not achieve the required improvements within 6 months to receive continued payment. 

It appears in the report that physicians have complaints of time management when filling out these tests for patients.  This is certainly a common complaint across all areas of medicine and is not unique to Daybue.

Caregivers indicated in the report that they are facing challenges of navigating a complex system. However this once again is not unique for Daybue. 

The report also claims that patients are losing interest in Daybue due to its side-effects. On page 10 of the report Culper sites reduced Facebook engagements and impressions since Daybue’s release in June 2023. 

This trend may be falsely attribute to drop out rates and alternatively may be caused by the opposite effect – less need to post as more and more caregivers have started Daybue and are managing the side effects so they are less likely to post for advice. High initial post rates may also have been related to questions about Daybue applications and insurance coverage.

There are 5 physician quotes in the report sighting a variety of reasons patients are reluctant to start Daybue e.g. due to diarrhea. It is difficult to put much weight in this anecdotal evidence when a sample of 5 other physicians are likely to give different answers again. 

There are certainly common stories of caregivers having to titrate Daybue dosages up and down and find dietary solutions to help with symptoms before further increases. This is true. Is this leading to attrition? Certainly some but so far Acadia denies high rates of drug attrition and claims a 76% retention rate at 6 months. Culper questions this and states that churn is likely “closer to double that.”

This assumption of double the churn appears to be based on the statement  made by a Physician interviewed for the report who suggested roughly 40% of patients cannot safely reach their full prescribed dose without safety issues.

I do acknowledge that this is a potential risk of Daybue. However I await further confirmation of these numbers directly from Acadia. 

Financials 

The Culper short report proposes that the market analysis is incorrect in its assumptions regarding the financial projections of Daybue and that sales have already peaked in 2023 and are going to fall moving forward. 

They double the churn reported by Acadia and a much higher attrition rate due to side effects and insurer payee issues. They also sight gene therapy as a major threat to Daybue usage as patients will opt to cease this medication in search of access to gene therapy trials. 

As explained above no gene therapy trials are likely to begin phase 3 which will require more participants than phase 1/2 until 2028-2030. So this is toward the very end of the proposed model. The current trials require very small sample sizes until safety and efficacy is established. Gene overexpression is a risk that requires serious caution especially in children. 

Culper Research history

At the beginning of this short report there is a disclaimer that I suggest everyone reads  (Culper Research Short Report). 

The disclaimer basically states that they are not liable for any losses from the information provided. That you should assume they have a position or are affiliated with people who have a position in the securities discussed in the short report. That Culper is or affiliates are long, short or neutral on the stock discussed in the short report.

There is a statement that they are continuing to transact in the securities that there is no warranty around the information provided and that they cannot attest to the accuracy of statements provided and quoted. That positive comments may not have been included and that the people quoted may have received compensation which could make them bias representatives. 

Culper involved in previous defamation

Life MD Inc Vs Culper– involved in defamation suit 

Culper Research and owner Christian Lamarko allegedly defamed Life MD Inc, CEO and CTO and claimed the pair had engaged in fraud in a previous company and had engaged unlicenced doctors to dispense medications. 

See news article ( here)

Life MD Inc was a telehealth company offering prescription based products and services for areas such as dermatology and hair loss. On April 14 2021 Culper research published a short report on the company. 

Defamation proceedings were bought against Culper Research and Lamarco shortly after this report was released. See defamation suit here.

Life MD CEO and CTO claimed that the report was a short and distort attack:

A “short and distort” stock scheme occurs when “short-sellers borrow securities, sell them, and then drive the price of their target company's stock down by spreading materially false, misleading, defamatory, and disparaging information about the company. Once the company's stock drops to an artificially low price, the short-sellers repurchase and return the borrowed securities, pocketing the difference.” 

Side note: Interestingly in this defamation case of Life MD Inc vs Culper Research and Christian Lamarco a footnote states: 

“Christian Matthew Lamarco is the sole employee and member of Culper Research.”

This is apparently a very small research house of one. 

The case is ongoing.

Summary

This short report has given me a chance to catch up on the latest gene therapy trials and investigate the FAERS database for myself. I am not currently overly concerned and I never believed or modelled a 100% retention rate or 100% TAM in the Rett community for Daybue. 

Daybue has side effects and they are manageable the benefit of this drug is life changing and worth the management of side effects. I will continue to hold my position and my conviction remains unchanged. Although I acknowledge potentially lower than modelled revenue for 2030 If attrition rates are slightly higher than expected.