Here are some sequels to stories I’ve written about here, things that have had some new chapters added to them. First off, this 2015 post mentions the steep drop in shares of Clovis Biotechnology, brought on by a rather sudden revision in the announced clinical performance of their lead drug (the covalent kinase inhibitor rociletinib). Well, it appears that the SEC found this to be rather abrupt as well, and Endpts now reports that the company has been under investigation. Some of their investors have long claimed that the presentation of the clinical data had been manipulated in order to keep the company’s stock price up, and it looks like that theory is getting a hearing.
It’s worth remembering the different time scales involved. Think of the different parts of a cell: you get fast service from receptors and second-messenger systems (starting on a time scale of less than a second), but if you’re waiting for proteins to be synthesized, you need to come back in a few hours. Likewise the stock market reacts pretty quickly to bad news (Clovis got sold off on that news as if the shares were giving off radon gas), but the regulatory authorities are much slower. That said, they’re also pretty hard to dislodge once they get a fix on your position.
But the markets can take a while to react to things, too, because it’s differences of opinion that make them work in the first place. Here’s another post from 2015 where I wrote about the IPO of a company (vTv Therapeutics, formerly TransTech) trying to make a go of it with a retread Alzheimer’s therapy. The comparison with Axovant was obvious at the time, and some readers will recall what eventually happened to them when their own drug failed yet again in an Alzheimer’s trial. As that post mentioned, I was short Axovant stock when that took place (an event that financed the purchase of a new 18-inch Dobsonian telescope around here). Well, vTv announced their own clinical trial results on Monday, and to no one’s particular surprise, the compound failed for them, just as it had for Pfizer back in the day when TransTech had licensed it to them in the first place.
The company’s stock had been up over $7 earlier in the year, on what I thought was rather misplaced optimism. I sold them short in January at $7.42, and have been careful not to write about them in any way since doing so (in fact, I haven’t mentioned them at all since that 2015 post). VTVT had been dropping since then, and was back down in the $3 range before they announced this news, but that failed trial sent them down steeply. At that point I naturally covered my position, which is one reason I mention it now. The stock is trading this morning at about $0.67.
And you know, if someone else comes along with a drug that’s already failed one or two Alzheimer’s trials, I’m very likely to short them, too. One of these days some odd AD mechanism is (I hope) going to work, but given the odds of clinical success, financing things like Axovant’s or vTv’s drugs that have already failed in the clinic seems like a bad idea. And that’s the other reason I’m bringing up my short sales of these companies: I (and the other people who were also short these outfits) should actually not be handed such opportunities. Axovant and vTv should not, in a more rational market, have been able to go public as blithely as they did with the assets that they had, and their market caps should not have achieved what heights they did.
This is a great time to finance small biopharma companies (and here’s a series of Twitter posts by Bruce Booth with some good advice on that subject). But with all this money sloshing around, some of it (as always under these conditions) is going into some rather stupid ideas. Caveat investor.