This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Biotech Stock Mailbag: Research Backs Shorting Micro-Cap Cancer Drug Stocks

Stocks in this article: CELGAEZSVICLSNYCYCCTRGTAMRN

The list of companies with negative phase III trial results -- and falling stock prices prior to announcement of those results -- included Cell Genesys, Novacea, Aeterna Zentaris (AEZS), Vion Pharmaceuticals, Vical (VICL) and more. No surprise: Many of the these companies are no longer in business.

Detsky and his co-authors deserve credit for raising the issue of insider trading as it relates to the conduct of clinical trials, but trying to prove that point by looking only at stock trading demonstrates a real lack of understanding about how Wall Street operates.

Instead, what Ratain and I demonstrate with our analysis is that the markets do a pretty decent job of using publicly available information to separate out the winners from the losers well before phase III clinical trial results are announced.

For investors looking ahead at ongoing cancer drug studies, our conclusion offers some potentially valuable advice:

"The phase III success rate for the studies conducted by larger companies was excellent (78%) and is consistent with success rates outside of oncology. Thus, the perceived high risk of failure of phase III oncology trials is primarily limited to smaller oncology companies. Furthermore, when considering very small oncology companies (ie, those with a market capitalization under $300 million) with a drug in phase III trials, the best investment strategy appears to be to short the stock (ie, borrow shares and sell them) before the announcement of the pending negative results."

I plan to test this hypothesis prospectively soon, so stay tuned.


Regarding my interest and enthusiasm for Targacept (TRGT) and its "add-on" anti-depressant drug TC-5214, @lomu_j tweets, "@adamfeuerstein MDD market is being flooded with generics. Does '5214 have a chance?"

MDD is the acronym for major depressive disorder and yes, the market is filled with cheap generics, but that hasn't crimped growth for branded antidepressants. Sales of branded antidepression drugs in the U.S. grew 18% to $12.5 billion last year, according to Bloomberg. The overall depression-drug market in the U.S. was estimated at around $16 billion, according to several analyst reports.

Certainly as more generic drugs enter, the market size will decrease, but '5214 is intended initially as an add-on therapy, which means doctors will prescribe '5214 in combination with currently approved antidepressants. It's estimated that approximately 60% of patients treated for depression do not respond to first-line therapy, making them ideal candidates for add-on (or augmentation) treatment with '5214.

3 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,814.94 0.00 0.00%
S&P 500 2,070.97 +3.94 0.19%
NASDAQ 4,781.2890 +23.0370 0.48%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs