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More problems for Neil "Nomates" Woodford as Kerrisdale savages biggest holding in WPCT

By Tom Winnifrith | Thursday 9 November 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

US bear raider Kerrisdale has launched a savage attack on the largest holding in the Woodford Patient Capital Trust (WPCT) the closed end fund managed by Nomates. The nature of the WPCT means that if Kerrisdale is even half right, Nomates is in big trouble.

Kerrisdale Capital is the firm that a couple of years ago correctly flagged up the big problems at Allied Minds (ALM) another stock Nomatres has backed heavily. It took a couple of years for that analysis to be utterly vindicated but it has been. If Kerrisdale is right about biotech Prothena Corporation, a $2 billion-plus company, the unwind will happen far sooner.

In Kerrisdale’s report, The Next Big Biotech Blow-Up, the firm predicts that Prothena’s “lead asset, NEOD001, will fail its ongoing Phase 2b and Phase 3 trials”. It has been designed to treat amyloid light chain amyloidosis, a rare condition that can lead to organ failure,

Kerrisdale states: “While this sounds good in theory, all clinical and scientific evidence points to disappointment. In the Phase 1/2 trial, NEOD001 failed to achieve meaningful clinical response, durable response, dose response, control over catastrophic events or any apparent benefit at all . . . The Phase 2b and Phase 3 trials will be no different.” The report also questions Prothena’s earlier trial.

Kerrisdale also has a pop at Nomates who it claims has “bid the price up, but history shows the Woodford effect does not last . . . Investors should beware when no notable healthcare hedge funds are involved in a multibillion-dollar name, and the largest investor has made repeated large mistakes in the biotech sector.”

Within the WPCT, Prothena is the largest holding at 16.33% of NAV. The third largest holding is Purplebricks (PURP) at 8.46%. Unquoted investments - which are by definition high risk - and are largely in biotech dominate the fund. Just the unquoted stock which are part of the top ten holdings account for 34.56% of NAV.

Shares in WPCT now trade at 95.8p only a small discount to the last stated NAV of 98.69p. But that NAV has been falling steadily and a collapse at either Prothena or Purplebricks - at least one of which is a nailed down cert - will see the NAV crash. Given the illiquid and high risk nature of the portfolio and Nomates poor track record of late the discount to NAV should be far far larger. As I warned before HERE - Sell.

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