Bavarian Nordic lands in crosshairs of short-selling campaign

As it works to bring its prostate cancer vaccine Prostvac to market and expand its smallpox vaccine business, Danish vaccine maker Bavarian Nordic this week encountered a new set of challenges. Despite a billion-dollar partnership with Bristol-Myers Squibb, it's the target of a short-selling campaign.

New York City-based hedge fund Kerrisdale Capital initiated its crusade against the Danish company and publicly predicted Bavarian Nordic's prostate cancer vaccine candidate will fail its ongoing Phase III trial. The fund's manager, Sahm Adrangi, said a "misleading statistical fluke" in previous trials will lead to the vaccine's troubles, adding that cancer vaccines have seen two decades of "unmitigated failure" and the fund expects "nothing different from Bavarian Nordic."

In its argument, Kerrisdale said it believes Prostvac data generated to date are artificially impressive because of a variation between prestudy health of patients in treatment and placebo arms. It also looked at a combination trial of Prostvac and Bristol-Myers Squibb's Yervoy and said of Bavarian Nordic's candidate: "Prostvac itself accomplishes nothing."

Bavarian Nordic CEO Paul Chaplin

A Bavarian Nordic spokesman declined to comment on Kerrisdale's report in an email to FierceVaccines, but, in an interview with Bloomberg, Bavarian Nordic's CEO Paul Chaplin took to his company's defense, arguing that the Phase II placebo group was an accurate patient population representation at the time.

While some view short-selling as a negative process in which investors seek to exploit a company's troubles, others believe companies such as Kerrisdale provide a valuable voice of reason during bull markets by keeping a skeptical eye on valuations.

Kerrisdale's sentiments on Prostvac clearly differ from those of the decisionmakers at Bristol-Myers Squibb ($BMY), which inked a deal earlier this year potentially worth up to $1 billion to explore the vaccine in treatment combinations. A recent report said such cancer vaccine partnerships will contribute to the field's growth as it expands at a CAGR of 27% through 2019.

Kerrisdale established a short position on 2.7% of Bavarian Nordic's shares last month and stands to benefit Bavarian Nordic's prices fall, a likely result of a late-stage Prostvac failure. However, it doesn't plan to wait for those data. The group is reportedly lobbying fund managers at Danske Capital and Fundamental Invest to offload shares, Danish newspaper Borsen reported.

Bavarian Nordic, for its part, is forging along. Last month, it initiated a Phase II study of Prostvac in early-stage cancer as a possible avenue to broaden the candidate's reach. And, in a move to expand its smallpox business, it is working on a freeze-dried formulation of smallpox vaccine Imvamune for governmental stockpiling.

- here's the Kerrisdale report (PDF)
- get more from FierceBiotech
- and a piece from Bloomberg