BOSTON (TheStreet) -- A late summer Biotech Stock Mailbag. Sean L. writes:
Big fan and follower of all things biotech. I came across the Feuerstein-Ratain Rule. I don't doubt the validity or consistency of it, however, I'm wondering does the rule hold true for when a small biotech company is partnered with a multi billion-dollar juggernaut such as Merck KGaA? What are your thoughts on Threshold Pharmaceuticals (THLD) ?
The careful vetting of all experimental cancer drugs by "the market" -- investors and Big Pharma -- is a key, underlying tenet of the Feuerstein-Ratain Rule. The most promising cancer drugs are identified relatively early, which leads to higher market valuations for the companies developing these drugs and Big Pharma partnerships or acquisitions. Or both. Conversely, experimental cancer drugs vetted early but found to be lacking tend to be orphaned i.e. the companies developing them are unable to sign a Big Pharma partner and their market valuations are relatively low.
Under fairly rigorous testing, the Feuerstein-Ratain Rule has proven to be remarkably accurate in identifying underwhelming cancer drugs and predicting clinical trial failures. The rule's track record for predicting the success of phase III clinical trials of cancer drugs is more mixed.
Threshold is an interesting case study. The company's lead cancer drug, TH-302, is partnered with Merck KGaA, the German pharmaceutical company. (Merck KGaA is entirely independent from the U.S. pharmaceutical firm Merck. They only share the same name.) Threshold and Merck are conducting separate phase III studies of TH-302 in sarcoma and pancreatic cancer. Top-line results from the sarcoma study of TH-302 is expected in the middle of 2015, although an interim futility analysis will be conducted next month. There is no estimated completion date for the TH-302 study in pancreatic cancer.
The Feuerstein-Ratain Rule doesn't pass judgment on cancer drugs until phase III clinical trials are approximately four months from completion, therefore it's too early to make a final prediction about Threshold. Pushing that limitation aside, Threshold's $240 million market value today is a concern because it suggests investors lack confidence in the eventual outcome of the TH-302 sarcoma and pancreatic cancer studies, as well as the company's partner choice. [The Feuerstein-Ratain Rule predicts with 100% accuracy the failure of cancer drugs developed by companies with market caps under $300 million.]
It's entirely possible Threshold is simply suffering more from investor dis-interest given the long time period before either of the two phase III studies are completed. If this is true, Threshold's stock price and market value will rise as data readouts from the studies get closer.
But if we move into the first quarter next year and Threshold's stock price doesn't increase significantly, it's a strong signal investors believe the TH-302 studies will fail. Merck KGaA's drug-development report card is littered with failures in recent years, so Threshold's credibility probably isn't boosted by its partner. In fact, having Merck KGaA as a partner may be a reason for Threshold's relatively low market value today. [If TH-302 were a real cancer drug, a better partner would have come along to snatch it up.]
Recall, results from the phase II study of TH-302 in pancreatic cancer were mixed, and since those data were disclosed, Celgene's (CELG) Abraxane received an expanded label to treat pancreatic cancer.
Excellent question. Steven Kriegsman is a Galena director and founder/CEO of Cytrx (CYTR) . Last January after the misleading DreamTeam promotional campaign helped triple the value of Galena's stock price, Galena CEO Ahn pocketed $2.8 million from the sale of Galena stock. At the same time, Kriegsman hauled in $2.1 million for himself by selling Galena shares. We still don't know how Galena and DreamTeam connected, but CytRx was also a DreamTeam client. DreamTeam employees, writing under false names, published misleading and promotional articles about CytRx and its experimental cancer drug aldoxorubicin -- the same tactics used for Galena.
No one at Galena will return my calls, but like Bill, I'd like to know how Kriegsman voted when the board met to decide on Ahn's future with the company. Given the uncomfortable circumstances, I wonder if Kriegsman abstained. Unlike Ahn, Kriegsman has yet to provide any comment on this company's involvement with DreamTeam Group. You know what they say about glass houses...
Yes, but not for the better. Only the most deeply delusional Galena shareholder will fail to connect the dots between Ahn's firing by the board and the recently completed internal investigation into the DreamTeam matter. Clearly, the two events are related, which lends more credence to the ongoing SEC investigation and provides added ammunition for aggrieved shareholders and their lawyers currently suing the company in state and federal courts.
Ahn's successor, Mark Schwartz, is an insider, having served previously as the company's chief operating officer. He joined Galena in 2011 as part of the company's acquisition of Apthera, which is how Galena came to own the breast cancer vaccine NeuVax. Galena acquired Apthera and NeuVax, which was deemed ready for a phase III study, for just $7 million. Schwartz is the guy who's going to clean up Galena? I find that hard to believe.
And while Galena's directors did the right thing by firing Ahn, they're hardly stewards of good corporate governance. Chairman Sanford Hillsberg and directors Richard Chin, Stephen Galliker and Rudolph Nisi all sold Galena shares in January at the same time Ahn and Kriegsman were selling their stock.
I covered Galena's struggling business operations last week.
Last word (for now) on Galena goes to Duke:
The SEC should be investigating Adam Feuerstein for receiving and distributing non-public material information prior to the press release, considering his tweets [Wednesday] and admission of using the information.
Um... It's called "journalism" not "press release-ism" for a reason.