There has been some interesting commentary on a recent study of stock trading ahead of phase III trial data with oncology companies. I'll start with a link to some of the commentary.
The Research - Rothenstein, Detsky, et al
We identified public announcements from 23 positive trials and 36 negative trials and from 41 positive and nine negative FDA regulatory decisions. The mean stock price for the 120 trading days before a phase III clinical trial announcement increased by 13.7% (95% confidence interval = −2.2% to 29.6%) for companies that reported positive trials and decreased by 0.7% (95% confidence interval = −13.8% to 12.3%) for companies that reported negative trials (P = .09). In a post hoc analysis comparing the stock price averaged over 60 trading days before and after day −60 relative to the clinical trial announcement, the mean stock price increased by 9.4% for companies that reported positive trials and decreased by 4.5% for companies that reported negative trials (P = .03). Changes in company stock prices before FDA regulatory decisions did not differ statistically between companies with positive decision and companies with negative decisions.
So, the trend is that the stocks tend to predict success before it is announced, arguing that the results are not quite as 'unknown' as they should be. But the last line is quite interesting as well, that while the trial result appears 'leaky', the FDA determination is quite watertight. But perhaps more interesting from a follow-on study is the trend that the market cap of the company releasing the data is even more predictive of the success of the trail.
Ratain and Feuerstein (yup, that one)
Drugs that succeed in phase III clinical trials tend to be owned and developed (or acquired) by larger companies that have strong records of accomplishment in drug development. Investors have greater confidence in these companies and therefore reward them with larger market valuations and increasing stock prices ahead of the public announcement of trial results. The opposite tends to be true for drugs that fail phase III trials: Such drugs tend to be owned by smaller companies that lack the confidence of investors and may be saddled with low market valuations and falling stock prices before announcements of trial results. Furthermore, the latter companies may have been of little or no interest to potential acquirers due to their perceived low probability of success.
None of this is all that surprising, but it is nice to see it evaluated. Good fodder for an investors bias-checks. If you are sitting on a late trial result, you might want to look at how the stock has been performing of late, and also limit the bets on the small and micro cap bets.
Home Coverage Fool [more]
This is starting to play out like an Ayn Rand Novel. I fully expect there to be even more polarization over the pharma industry, and its responsibilities vs. its need to innovate and turn profits. Today in Pharmalot there was yet another story about the increasing difficulty pharma companies are having with Greece, and apparently the EU. I blogged in late August that Greece had apparently paid some pharma with government bonds, and Roche was quite public about this amounting to a discount on top of the negotiated prices of the mediciations. [more]
Richard Resnick's TED Talk. [more]
The Helical portfolio has had a very good August. As the month closed, it stood at just under $59,200, up year to date at ~17.9%. I'm more than a little stunned it recovered so quickly to near its April highs. The move to raise cash in June, and redeployment in August have worked out better than could be expected, which makes me nervous. Right now, I'm about fully invested with a very large position (>15%) in PPDI (bought more since the linked early August buying spree). PPDI seemed like an appealing, but not certain arbitrage opportunity, as there are indications of a pending buyout announcement, with Carlyle group leading multiple bidders and analysts expecting a $33 to $38 price (we'll see). What gives me the most confidence is the implicaiton of multiple bidders, so even if Carlyle doesn't work out, someone should be there and hopefully within the range. Seemed worth adding under $31, especially since I'm a bit uncomfortable in the current market (my lizard brain is telling me to preserve gains I have). [more]