Well, as predicted here (and many other places), Merck announced yesterday that they are indeed not going to try to seek approval for their CETP inhibitor, anacetrapib. That’s despite an ostensibly positive Phase III trial, but it apparently wasn’t positive enough to take the risk of bringing this drug before the FDA (or to the market).
That’s an understandable decision (see that post linked above), but it should also make investors in this sector sit and think for a minute. Let’s talk about that: here’s one of the largest and most respected drug developers in the world. They announce that one of their biggest programs (for a huge market) met its primary endpoint in its most advanced clinical trial. Is that good news? You’d think so, wouldn’t you, from a distance? But that distance is what is going to lose you all your money if you keep investing from that perspective. Because (as this example shows) you need to know at least enough about the history of the CETP field and about the way that press release was worded to understand what you’re being told, beyond the phrase “met its primary endpoints”. And this is the situation that obtains with a big, respectable, well-run drug company that does not go around trying to fool people. If you want to invest in the really exciting parts of the biopharma market, you’re going to have to have your wits around you to a much greater degree.
Not to pile on these folks, but look at the recent Axovant story. How many of the bullish investors in that company realized (or really understood) that the same exact compound had failed a well-run Phase II trial in Alzheimer’s, and that since then two other drugs with the exact same mechanism of action had done the same? Given the record of Alzheimer’s clinical trials, this should have been enough to make anyone run the other way. Now, I know that there were some intelligent people who put some money down on that one, but (from what I can see) the only intelligent case to be made was that this trial was much more statistically powered than the last ones, and that there was a small chance that it might show a sliver of statistical efficacy somehow that didn’t manifest itself in the earlier work, and that this might (in the current regulatory environment) be enough to get the drug on the market – and a new Alzheimer’s drug, whether it really helps anyone in the real world or not, would most certainly sell. That was the story, and if you wanted to take some wild cash and place a bet on that possibility, you could. But it’s for sure that a lot of the money that went into raising Axovant’s stock price in the week or so before the announcement was not being invested in that manner. There were people who thought that this was a great idea, a hot stock that was going to make them serious profits, because. . .well, because they’d heard it was. And they hadn’t done their homework, not enough to realize how very heavily the odds were against that happening. Axovant’s stock, in a more rational world, would not have taken the beating it did, because in such a world it never would have risen so high in the first place.
Almost invariably, the smaller the company (and the more desperate the disease) the more you have to scrutinize the data and announcements being made. Merck certainly did not try to deceive anyone with their announcement earlier this summer about anacetrapib, but remember, mundus vult decipi: people want to deceive themselves, and they will line up and pay money to be told the stories that they want to hear. That works out pretty well at the movies or at the bookstore, but not so great in the stock market. To lapse into Latin some more, when you read the public statements made about a drug discovery project, you will encounter at times both suppressio veri, where the truth is incompletely revealed, and suggestio falsi, where things that aren’t true are made to sound as if they are. Blatant examples of either one can land people in trouble, of course, but that’s the tricky part about biopharma investing: they don’t have to look so blatant to be effective. Touting positive results in a trial that’s so underpowered that they don’t mean much, sliding over the fact that this was an open-label study rather than a double-blinded one, not going into the previous times this compound or therapy has been in the clinic, not placing the results in a context with clinical or regulatory relevance – there are a lot of ways to accomplish the same goal, and if you stick with the field you’ll see them all. Again, and again, and again.
What to do about that? Well, the sovereign remedy is to become better informed. Get smarter, learn more about drug development and about the particular therapeutic area you’re thinking about investing in. This obvious step, though, seems to be an unpleasant prospect for many small investors, so they try to go the next best route and listen to people who have put in that effort. The problem then is that if you don’t know enough to evaluate the company or its drug(s), how do you know enough to evaluate the people who are evaluating them for you? Quis custodiet ipsos custodes? Now, breaking out three or four Latin tags in the space of a few minutes will often get things thrown at you (I speak from experience here), but one thing to keep in mind is that if a mistake is old enough and common enough to have its own Latin or Greek name attached to it, it’s worth looking into. Depending on other people to tell you about biopharma stocks just kicks the fundamental problem down the dirt road a bit – there’s no substitute for learning something yourself. If that’s too time-consuming or difficult, you should go invest in something else that you understand better. Otherwise, you are inviting people to rip you off, and there is, has been, always will be a ready crowd of people to help you with the task of removing money from your pockets.