September 30, 2011 — Has there been insider trading based on embargoed clinical trial results with experimental anticancer therapies? That's the suggestion in a paper published online September 26 in the Journal of the National Cancer Institute.
The stock prices of companies that eventually report positive results tend to increase before those results are publicly announced, whereas the stock prices of companies that end up reporting negative results decline before the results see the light of day, the authors report.
Allan S. Detsky, MD, PhD, and his colleagues from the University of Toronto, Ontario, Canada, explain that phase 3 clinical trials and US Food and Drug Administration (FDA) regulatory decisions "are critical for the success of new drugs and can influence a company's market valuation.
"Knowledge of trial results before they are made public (i.e., insider information) can affect the price of a drug company's stock," they add.
Dr. Detsky and his team were curious about the stock prices of companies before and after public announcements about experimental anticancer drugs.
In this study, they identified drugs that were undergoing evaluation in phase 3 trials or awaiting regulatory approval from the FDA from January 2000 to January 2009.
They analyzed the stock prices for the 120 trading days before and after the results of clinical trial outcomes or FDA regulatory decisions were publicly announced.
Stock prices were obtained from the Center for Research in Security Prices and from Bloomberg Professional, and most companies were listed on the NASDAQ or the New York Stock Exchange.
They found that the mean stock price in the 120 days before a positive result was announced increased by 13.7% (95% confidence interval [CI], –2.2% to 29.6%); before a negative result, the price decreased by 0.7% (95% CI, –13.8% to 12.3%).
In a post hoc analysis, Dr. Detsky and colleagues compared average stock prices in the 120 to 60 days before clinical trial announcements with the average price in the subsequent 60 days.
In that analysis, they found that companies reporting positive trial results showed a mean increase in their stock price of 9.4%, whereas those reporting negative results showed a decrease of 4.5% (P = .03).
However, stock prices were not affected by positive or negative FDA decisions.
One Explanation? Insider Trading
Dr. Detsky and colleagues write that one possible explanation for their findings is insider trading.
"Before clinical trial results are made public, many people involved in the trial process are likely to have information regarding the outcomes," they write.
"The changes in postannouncement share price that we have demonstrated highlight the potential use of this information by individuals for profit once it becomes public."
They add that FDA decisions would not influence stock prices because the information on which these decisions are based is already public.
Finally, Dr. Detsky and his team write: "The results of this study call for increased awareness by investigators regarding the legal and ethical aspects of divulging nonpublic information regarding clinical trials."
They're Wrong
"We're very concerned about what the authors suggest, but they're wrong," Mark J. Ratain, MD, professor at the University of Chicago, Illinois, told Medscape Medical News.
Dr. Ratain and Adam Feuerstein, a senior columnist at TheStreet.com, wrote an editorial that accompanies the paper.
The editorialists undertook their own analysis of the companies that were studied by Dr. Detsky and his team, and calculated the market capitalization of the companies 120 days before public announcements. They found that market capitalization was 80-fold greater for companies with positive trials than for those with negative trials, indicating that the subsequent negative trials were not a surprise.
"The difference in the market capitalization at day –120 most likely reflects publicly available information regarding the phase 1 and 2 clinical trials (as well as other factors, including competition and management), which has been incorporated into the market value of a stock," the editorialists write.
They add: "The stock market is known to anticipate future events, as opposed to reacting to the past. Thus, it is not surprising that sophisticated investors are able to judge the probability of success, which is reflected in the share price."
100% Wrong
"As we point out in our editorial, the data were misanalyzed," Dr. Ratain told Medscape Medical News. "There is no basis for their conclusion. They just didn't analyze the data properly. They are completely wrong."
By the time phase 3 trial results are announced, they are usually no surprise, he added.
"Many of the references in our editorial are to Mr. Feuerstein's writings as the biotech columnist for TheStreet.com. He commented on many of these companies before their phase 3 results were announced, basically saying that these drugs suck," Dr. Ratain said.
If there is any wrong doing, it is on the part of companies that continue to do phase 3 trials inappropriately, he said.
Medscape Medical News tried to reach Dr. Detsky for his comments, but he had not responded by press time.
Dr. Detsky and Dr. Ratain have disclosed no relevant financial relationships.
J Natl Cancer Inst. Published online September 26, 2011. Abstract, Editorial
The stock prices of companies that eventually report positive results tend to increase before those results are publicly announced, whereas the stock prices of companies that end up reporting negative results decline before the results see the light of day, the authors report.
Allan S. Detsky, MD, PhD, and his colleagues from the University of Toronto, Ontario, Canada, explain that phase 3 clinical trials and US Food and Drug Administration (FDA) regulatory decisions "are critical for the success of new drugs and can influence a company's market valuation.
"Knowledge of trial results before they are made public (i.e., insider information) can affect the price of a drug company's stock," they add.
Dr. Detsky and his team were curious about the stock prices of companies before and after public announcements about experimental anticancer drugs.
In this study, they identified drugs that were undergoing evaluation in phase 3 trials or awaiting regulatory approval from the FDA from January 2000 to January 2009.
They analyzed the stock prices for the 120 trading days before and after the results of clinical trial outcomes or FDA regulatory decisions were publicly announced.
Stock prices were obtained from the Center for Research in Security Prices and from Bloomberg Professional, and most companies were listed on the NASDAQ or the New York Stock Exchange.
They found that the mean stock price in the 120 days before a positive result was announced increased by 13.7% (95% confidence interval [CI], –2.2% to 29.6%); before a negative result, the price decreased by 0.7% (95% CI, –13.8% to 12.3%).
In a post hoc analysis, Dr. Detsky and colleagues compared average stock prices in the 120 to 60 days before clinical trial announcements with the average price in the subsequent 60 days.
In that analysis, they found that companies reporting positive trial results showed a mean increase in their stock price of 9.4%, whereas those reporting negative results showed a decrease of 4.5% (P = .03).
However, stock prices were not affected by positive or negative FDA decisions.
One Explanation? Insider Trading
Dr. Detsky and colleagues write that one possible explanation for their findings is insider trading.
"Before clinical trial results are made public, many people involved in the trial process are likely to have information regarding the outcomes," they write.
"The changes in postannouncement share price that we have demonstrated highlight the potential use of this information by individuals for profit once it becomes public."
They add that FDA decisions would not influence stock prices because the information on which these decisions are based is already public.
Finally, Dr. Detsky and his team write: "The results of this study call for increased awareness by investigators regarding the legal and ethical aspects of divulging nonpublic information regarding clinical trials."
They're Wrong
"We're very concerned about what the authors suggest, but they're wrong," Mark J. Ratain, MD, professor at the University of Chicago, Illinois, told Medscape Medical News.
Dr. Ratain and Adam Feuerstein, a senior columnist at TheStreet.com, wrote an editorial that accompanies the paper.
The editorialists undertook their own analysis of the companies that were studied by Dr. Detsky and his team, and calculated the market capitalization of the companies 120 days before public announcements. They found that market capitalization was 80-fold greater for companies with positive trials than for those with negative trials, indicating that the subsequent negative trials were not a surprise.
"The difference in the market capitalization at day –120 most likely reflects publicly available information regarding the phase 1 and 2 clinical trials (as well as other factors, including competition and management), which has been incorporated into the market value of a stock," the editorialists write.
They add: "The stock market is known to anticipate future events, as opposed to reacting to the past. Thus, it is not surprising that sophisticated investors are able to judge the probability of success, which is reflected in the share price."
100% Wrong
"As we point out in our editorial, the data were misanalyzed," Dr. Ratain told Medscape Medical News. "There is no basis for their conclusion. They just didn't analyze the data properly. They are completely wrong."
By the time phase 3 trial results are announced, they are usually no surprise, he added.
"Many of the references in our editorial are to Mr. Feuerstein's writings as the biotech columnist for TheStreet.com. He commented on many of these companies before their phase 3 results were announced, basically saying that these drugs suck," Dr. Ratain said.
If there is any wrong doing, it is on the part of companies that continue to do phase 3 trials inappropriately, he said.
Medscape Medical News tried to reach Dr. Detsky for his comments, but he had not responded by press time.
Dr. Detsky and Dr. Ratain have disclosed no relevant financial relationships.
J Natl Cancer Inst. Published online September 26, 2011. Abstract, Editorial
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