I'm often asked how I go about researching biotech stocks. The first thing I say is that it requires a lot of hard work. The successful biotech investor is part financial whiz, part savvy Wall Street technician and, most important, part scientist/medical expert.

It's the latter task that many people find the most difficult. Biotech companies issue press releases all the time touting the potential of their experimental drugs, and the stocks move as a result.

But how do you separate the truth from the hype? What sort of questions should you be asking yourself when you evaluate these press releases? And where can you find the unbiased information you need?

As Jim Cramer often says, wisely, investing requires homework. So let's dissect a biotech press release to illustrate how it should be done.

On Friday, Point Therapeutics ( POTP) released preliminary results from a phase II study of its drug talabostat in patients with advanced pancreatic cancer.

I don't know much about Point Therapeutics or talabostat, so let's get to work learning more. But remember, I'm only using this announcement to illustrate how to research biotech stocks; I'm not making any judgment on the merits of Point Therapeautics as an investment -- it's a tiny, small-cap stock that trades at around $1.

Here's how the company's press release began:

"Point Therapeutics, Inc. today provided preliminary results from the Company's open-label Phase 2 trial of talabostat plus gemcitabine in patients with metastatic pancreatic cancer (Stage IV) who have not received prior chemotherapy."

For starters, I always look at something like this with a skeptical eye. Companies are in the business of selling themselves to investors, so you want to be critical. In this case, you need to be even more cautious because these results are preliminary, which means they will change.

The phase II study here is open label, which means that doctors and their patients were aware of the experimental treatments being offered. There was also no control group in the study to make comparisons.

It's very common for phase II studies to be conducted on an open-label basis -- think of them as proof-of-concept studies. But as such, they aren't as rigorous as randomized, placebo-controlled studies normally used in the final phase III push to get a drug approved.

A smart rule of thumb: Data from open-label studies will skew positive; final data rarely looks as good.

The Point Therapeutics study evaluates talabostat (the company's experimental drug) with gemcitabine (brand name, Gemzar, sold by Eli Lilly ( LLY)) in patients with Stage IV metastatic pancreatic cancer who have not received prior chemotherapy. The press release then gives the preliminary results:

"Of the 21 evaluable patients who entered the study at least six months ago, ten (48%) have survived more than six months. In addition, 31 patients are currently evaluable for tumor response. To date, three patients (9.7%) have demonstrated a clinical response to treatment, including one complete response and two partial responses. One patient with metastatic disease to the liver experienced a complete response to treatment -- defined as the complete disappearance of tumor."

Clearly, the company finds this data positive and encouraging for talabostat. But in a vacuum, it's hard to tell. This is a combination study, using two drugs in patients who've not yet received any drug treatment, so I want to know how using talabostat plus gemcitabine stacks up to using gemcitabine on its own.

Since this study doesn't address that question directly, I need to find some outside data on my own.

The Web site of the Food and Drug Adminstration can help here. Go to the " Drugs@FDA " section and search for gemcitabine. Click on the drug's label and read it. What you'll see is that gemcitabine was tested in patients with advanced pancreatic cancer and yielded a median survival of 5.7 months. The median time to disease progression was 2.1 months, and there were no objective tumor responses, which is a measure of tumor shrinkage.

Point Therapeutics told us that 48% of its patients have survived more than six months. That's a nice statistic, but it's not exactly comparable. The company either doesn't know yet -- or hasn't told us yet -- the median survival in its study.

Still, let's say for argument's sake that almost half of the talabostat patients appear to be living six months or more, which is suggestive of some drug activity compared with using only gemcitabine. But it's hardly conclusive.

The response rate in the talabostat study, the company says in the release, was 9.7%, including one complete response and two partial responses. Well, that's interesting given the fact that there was no evidence of tumor shrinkage from the gemcitabine label.

This is where I start to dig a little deeper. To learn a bit more about pancreatic cancer, I'd conduct a search at MedlinePlus. Here, I have access to a lot of detailed information on pancreatic cancer, including updated treatment information.

One of the things I found is that in late 2005, the FDA approved a new treatment for the cancer that combines Genentech's ( DNA) Tarceva (co-marketed by OSI Pharmaceuticals ( OSIP)) with gemcitabine. So, I wonder next, how does that treatment compare with Point Therapeutics' talabostat data?

We go back to the FDA Web site, and the Drugs@FDA section, to look up Tarceva's label.

Sure enough, there's a lot of good information here. Tarceva was approved in pancreatic cancer based on data from a randomized, double-blind, placebo-controlled study of 569 patients -- very large and rigorous.

Patients getting the Tarceva-plus-gemcitabine combination had a median survival of 6.4 months and a tumor response rate of 8.6%. By comparison, patients getting gemcitabine plus placebo had a median survival of 6 months and a tumor response rate of 7.9%.

Cross-study comparisons will always have limitations, but this new information helps put Point Therapeutics' talabostat data in better perspective. The very preliminary "survival" data provided for talabostat may or may not be clinically relevant, but from what we've learned, it doesn't seem significantly better than the Tarceva data.

We need more data to evaluate. Talabostat also needs to be tested in a lot more patients. Talabostat data based on a 21-patient analysis looks pretty puny compared with a 569-patient Tarceva study.

We also know now that gemcitabine, by itself, can shrink pancreatic tumors. That fuzzies up the talabostat data because we can't tell which drug -- talabostat, gemcitabine or a ratio of both, is responsible for the 9.7% tumor-shrinkage rate. Again, it will take a lot more patients in controlled studies to really tease out this data.

I consider the above homework to be the minimum amount to get started. But there's a lot more you can do. I focused on efficacy, but of course, a drug's safety profile is just as important. To do a further competitive analysis, you can visit the ClinicalTrials Web site to see what other drugs are being developed for pancreatic cancer. (You'll find 205 listed clinical trials currently enrolling for pancreatic cancer patients.)

I'd also start doing deeper research into talabostat. Start at the Point Therapeutics Web site; try to understand how the drug works and what other diseases it's being developed for. Conduct a search on PubMed to see if there's been any previous studies or data published on the drug.

All this scientific research takes time. It's not easy, and it never guarantees you'll make a good investment decision. But if you want to be an active and successful biotech investor, you have to make the commitment. Hopefully, it will pay off.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Point Therapeutics to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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