February 15, 2005 (Vol. 25, No. 4)

Disclosing Too Much Information Can Be Counterproductive for Companies

Biotech investors, executives, and entrepreneurs have always made it a priority to gather at the beginning of each year in San Francisco to conduct business at the “JP Morgan Healthcare Conference,” formerly the “Hambrecht & Quist Life Science Investment Conference”. This year a record 6,700 attendees attended the 4-day, “can’t-miss” event.

Biotech companies and their PR firms have traditionally used this investment conference to broadcast major developments at their companies. In the past, announcements made at the H&Q conference had a maximum ability to drive up stock prices.

Despite an excess of biotech-related products in the late stages of clinical development, the mood of investors at this year’s conference seemed to be one of cautious optimism. Attendees at the conference appeared more subdued and there was less buzz and excitement.

Maturing Industry

This mood swing may be a sign of a maturing biotech industry or it may be that this new generation of biotech investors are inured to biotech executives embellishing their companies at investment conferences.

In the late 1980s and early 1990s, executives of middle-tier biotech companies were intent on becoming fully integrated biopharmaceutical (FIBCO) companies.

During that period, the FIBCO concept generated great interest among biotech investors, who drove up the stock prices of companies. Investors were trying to find the next Amgen (Thousand Oaks, CA) or Genentech (S. San Francisco), bellwether biotech companies.

With the genomics revolution, the FIBCO concept fell by the wayside as investors became more risk averse and began focusing their attention on platform and tool box companies.

Genomics and gene database companies, such as Human Genome Sciences, Celera, and Incyte Pharmaceuticals, and combinatorial chemistry companies, such as Arqule and Combichem, became the hot firms with their novel business and discovery platforms. Investors began driving the stock prices of these new companies into the stratosphere.

In the spring of 2000 when both the Internet and biotech bubbles burst, the sector was sent into a recession, and biotech executives of early-stage companies were sent into a deep depression.

The financing window for early-stage biotech came crashing down when venture capitalists became mezzanine financiers by investing in public companies, which they perceived were receiving venture capital-type valuations.

During this period, middle-tier biotech companies became more adept at designing clinical studies and eventually received FDA approval for their lead products.

Additionally, monoclonal antibodies made a comeback in the early 2000s with products such as Immunex’ Enbrel, Centocor’s ReoPro, Idec’s Rituxan, and Genentech’s Herceptin being FDA-approved and becoming frontline therapies for their respective clinical indications.

This year’s “JP Morgan Conference” reaffirms that the biotech sector has come full circle; companies are once again embracing the FIBCO concept. Investors are now more interested in companies with products in the late stages of clinical development.

This biotech investment theme has caused entrepreneurs to rethink their business models. Most of the start-up companies that are able to raise money are classified as specialty pharmaceutical companies in which the business strategy is to in-license niche market drugs from large pharmaceutical companies.

There is a negative aspect to this specialty pharmaceutical paradigm.

The current in-licensing strategy will curb innovation, an engine that has been powering the sector since its inception in the late 1970s. It remains to be seen how long this trend will continue.

Dendreon Redux

There is occasionally a downside to making a major announcement at a widely attended healthcare investment conference. Sometimes the news may have a negative impact on a company’s stock price if the announcement appears ambiguous.

Last year at the “JP Morgan Conference,” Dendreon (Seattle) reported that an interim analysis of one of its Phase III trials with Provenge, a cancer immunotherapy, found that prostate cancer patients treated with the therapy appeared to survive longer with a Gleason score of 7 or lower, compared to those patients having a higher Gleason score (patients with the most recalcitrant form of the disease).

After announcing these results, Dendreon’s stock price appreciated almost 50% in the subsequent weeks.

Then in October 2004, Dendreon announced a survival benefit in the 127-patient Phase III study (D9901) that was statistically significant when compared to the survival rates of the placebo-treated group.

However, at last month’s “JP Morgan Conference”, the company announced results from another 98-patient Phase III study (D9902A) with Provenge, which was cut short due to Gleason score interim analysis in the previous D9901 study.

The DD9902A clinical trial included all comers, which was subsequently amended to the larger pivotal D9902B clinical study.

CEO Mitch Gold, M.D., told the audience that an interim analysis of the patients enrolled in the D9902A study showed a lack of statistical significance in the primary endpoint of median time to disease progression, but he also emphasized that similar to the D9901 study, the patients treated with Provenge appeared to survive longer.

The company announced during the conference that the results of the three-year D9901 study would be presented at the “ASCO Prostate Cancer Symposium” to be held in February.

Investors were confused as to how to interpret the D9902A results with the ongoing pivotal D9902B study consisting of 275 androgen-independent, metastatic prostate cancer patients who were enrolled in the study with a Gleason score of 7 or less.

Mixed Messages

Investors were also confused by the D9901 results, which showed a statistically significant difference in median time to progression in a patient subpopulation with a Gleason score of 7 or less, but not in the D9902A study, which is similar in trial design to the D9901 study.

Since the primary endpoint of median time to progression was not met in the small D9902A study, analysts covering the company downgraded their ratings, and one projected a delay in the company’s BLA submission to the FDA.

Dendreon’s stock price plunged 30% as a result of investors receiving mixed signals from the company.

It is unfortunate that Dendreon could not clearly convey to the investment community that the studies’ primary endpoints of median time to progression were really a surrogate measurement of the effectiveness of Provenge at the time the study was designed six years prior.

Lost in the company’s recent announcement was that Provenge’s therapy consistently demonstrated a survival benefit in prostate cancer patients, irrespective of their Gleason score.

Dendreon’s Monique Greer further noted that Provenge’s survival benefit would be an important consideration when the FDA reviews marketing approval of the product, since it is considered the gold standard for approving anticancer therapies.

Being highly sensitive to corporate transparency, biotech companies at investment conferences may sometimes disclose too much information to the public. Dendreon is a good example of perception becoming a reality in the minds of the investors.

At this year’s “JP Morgan Conference,” many cautious investors viewed the company’s disclosures as a glass half empty in contrast to the previous year when similar disclosed results were viewed as a glass half full.

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