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TheStreet Open House

The 5 Dumbest Things on Wall Street This Week: Aug. 23

4. GTX Junk

Forget "Baby." Nobody puts Feuerstein in a corner.

Shares of GTx (GTXI) got smacked Monday, losing nearly two thirds of their value, after the biotech player said its enobosarm treatment for muscle wasting in lung cancer patients failed in late-stage clinical testing. GTx said in January that the FDA would review enobosarm under its fast-track program, which is designed to accelerate the approval of drugs that treat life-threatening diseases. GTXi stock sank to $1.49 Monday, the company hit a 52-week high of $7.24 in June.

GTx CEO Dr. Mitchell Steiner said he planned to talk to both the FDA and European regulators about next steps for the drug, which the company claimed to have a consistent effect on lean body mass when compared with a placebo.

Before we talk future steps for GTx and enobosarm, however, let's take a quick step back to settle an old score.

Back in mid-July, TheStreet's biotech reporter Adam Feuerstein published a story correctly foretelling enobosarm's failure titled "The GTx Cancer Muscle-Wasting Drug Studies Will Fail. Here's Why." In the article, Feuerstein makes his prediction based on information from "one of my favorite fund manager sources" who happened to be short GTx and expects the enobosarm studies to fail.

Said Feuerstein at the time: "This is the same fund manager who was most recently short Ziopharm, Celsion in anticipation of negative clinical trial data. He was correct both times. Past performance doesn't always predict future results, but his track record is pretty damn good."

Hey, Adam's a journalist and he has sources. That's the way this business works. And in this case, his source convinced him that enobosarm wouldn't beat the placebo. Adam then spelled out in painstaking detail why he was siding with his source in the article, which knocked down GTx shares 25% when it hit our site on July 10.

Not too long after, a Wedbush Securities stock analyst named David Nierengarten who was bullish on the company, blasted Adam's piece as being "factually incorrect." Nierengarten also attacked Adam ethics and professionalism saying that he has "a problem with people using journalists to manipulate a stock."

First of all, while Adam's article may not have had the panache of a Dumbest piece, it was thorough and sourced fine. But don't believe us. Read it yourselves.

Next, it's perfectly legitimate for a journalist to cite a short-selling fund manager as a source. The reason research analysts got into trouble during the tech bubble and were eventually forced to settle for more than a billion dollars was because they were overly biased to the long side. They're bullishness cost investors billions of dollars, so the idea that journalists can't quote bears is ludicrous.

Have we forgotten the Enron story already? Give us a call Jim Chanos, we'll still quote you anytime.

Nevertheless, using Adam as his foil, Nierengarten reiterated his $9 price target and "Outperform" rating on the stock and stuck with it all summer.

Well, fast forward to this past Monday when GTx went down for the count and Adam's facts were revealed to be correct indeed. Nierengarten said no mas, throwing in the towel on the stock with a downgrade to neutral and a $2 price target.

Look. We don't want new cancer drugs to fail. Nobody does. But it unfortunately does happen and it's Adam's job to report on it. Sometimes he's right, sometimes he's wrong. But he does it better than anybody. Certainly in this case, he did it better than an accusatory analyst who should have shut his damn mouth.

Now that we've said our piece, let's get back to the future of GTx. What does Adam say about the company following its disappointing results?

"Don't for a second believe GTx CEO Mitch Steiner's B.S. spin about a potential survival benefit emerging from the failed phase III studies of enobosarm," wrote Feuerstein Monday. "Steiner is simply desperate to keep his company's stock price trading above cash where it belongs."

What say you now Nierengarten?

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