Why did Prana Biotechnology Limited skyrocket 56% today?

Prana Biotechnology Limited (ASX: PBT) shares soared 61.3% at one stage to 15 cents on high volume today but the reason for the rise is unclear. Prana is also listed on the NASDAQ in the US where shares rose 30.0% in yesterday’s trading.

Today’s price action comes soon after the company was asked by the ASX to explain unusual trading patterns in early June this year. At the time, Prana responded that it was unaware of any reason for the increase in price of its securities.

Prana has a market capitalisation of $75.8 million and has had a tough time since listing back in 2000. Despite today’s rise, the stock is down 82.9% since it debuted and shareholders have stumped up $146.9 million of equity since the company’s inception.

To be fair, Prana still holds $28.6 million of that cash and it will need every penny to get its lead candidate PBT2 approved for Huntington’s disease. The company is planning a Phase III trial after the drug displayed good efficacy in a Phase II trial held in 2013.

Unfortunately, the Food and Drug Administration (FDA) has placed the drug under a partial clinical hold which means that Prana is unable to carry out further trials at clinically significant doses. The reason for the hold is that studies suggest there may be safety issues when using PBT2 on dogs and now Prana must demonstrate that humans are unaffected.

Despite this, PBT2 has been awarded Orphan drug status in both the US and Europe for treating Huntington’s. Only medicines targeting rare diseases qualify for Orphan status, which grants a period of marketing exclusivity for the holder.

PBT2 is also in late stage trials for Alzheimer’s disease, but the drug has delivered less positive results than with Huntington’s. In a Phase II trial, Prana hoped to show a reduction in amyloid, which are protein fragments, in the brains of those treated with PBT2 compared to a placebo group. The study failed because amyloid unexpectedly reduced in the control group.

Amyloid plaques are abnormal protein deposits found in the brains of Alzheimer’s sufferers. As the disease progresses, they usually become more prevalent which seems at odds with the results of Prana’s trial.

Huntington’s disease affects only around 100,000 people globally whereas the number of Alzheimer’s sufferers is in the tens of millions and rising fast. Therefore, although it looks more likely that PBT2 could be approved for treating Huntington’s, the financial implications of success with Alzheimer’s are far more significant.

I admire companies like Prana that strive to further our understanding of debilitating conditions such as Alzheimer’s and Huntington’s disease, even if they are motivated by financial gain. However, it looks like the company is someway off regulatory approval and so I won’t be buying shares anytime soon.

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Motley Fool contributor Matt Brazier has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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