Trading Drug Trials

Found via a July article from Dealbreaker, we're given an excerpt from ex-hedge fund manager Andy Kessler's new book The End of Medecine. Its gives some quick insight into how one might trade drug trials for pharmaceutical companies.

I was eavesdropping on two guys I recognized from the past. One guy used to run some tech money, I think I remember him getting blown out in 2000 for being long and wrong. But he’s obviously still in the business. I strained to read his name tag, without luck. The other guy was a classic popcorn hedgie. Always showing up where the action in, figuring out some angle and trading rapid fire looking for returns.

“For me, it’s just one thing.”

“Market size?”

“Nope, these are all billion dollar markets.”

“Management?”

“Nope, they’re all trying to hit fish with a baseball bat.”

“True. So what is it? Balance sheet? Partners? Their logo?”

“You just play the trials. I don’t give a shit what drug it is, it almost always works the same way.”

“Get out of here.”

“No, check it out. Preclinical is bullshit, you could get gum off the sidewalk to reduce tumor size in rats. So what? Even Phase 1 is a load. They are mostly bent around to get decent enough results so you can get to Phase 2. I’ve tried to time Phase 1 announcements, but no dice. You always wait until you are about a third of the way into Phase 2, then you buy the shit out the stock."

“C’mon.”
“It works. The first few press releases are almost guaranteed to be positive. Companies will do anything to get their stock up before the final results hit. Phase 3 is just so damn expensive, they want to sell stock or converts or something so they don’t have to give the damn drug away to big pharma.”

“OK.”

“Look, the stock almost always pops. I usually sell into it, unless the press release is blow-away efficacy numbers, then you can stick around. But not forever.”

“No?”

“Hell no, you almost always sell right before the Phase 2 trial is over. Everyone figures it’s gonna work, so the stock goes up until the day of the announcement. It almost always gets whacked when they announce the real results, people already know. The doctors have been trading the stock ahead of you and dump it on the news.”

“That’s it?”

“I sometimes do Phase 3, but that’s harder. Even if something works, the costs kill you. The stocks going
down.”

“But it pops on the news at the end of Phase 3.”

“Sometimes. Not always. You can get killed if the trial fails.”

“Can’t you play that?”

“Nah. I don’t like to gamble. Not even in Vegas.”

Well at least sounds plausible. We'll let others take it from there.

Comments

[wcw]

That's not a bad way to summarize how discovery companies trade on their trials. Me, I like to watch them for good science, wait for the inevitable price declines, and pick up a few lots now and then on really nice swoons, but I see them as options that don't expire. If you need returns this week, every week, playing PhII is a damned good idea.

[snook]

Yes, interesting. I've traded Renovis (RNVS)for some time. Last it dropped to $10 Ibought deep in $ calls reather than common as, if you correlate the 2 yr. price chart to anouncements, and played it in a practical, disciplined manner, one made enough $ to use...well for me, risk free calls to load for the next major key event in Q4 2006. Funney, I thought of this scenerio yesterday as my direct flight made an emergency landing to let off a fellow having a mild? stroke. All I could think of (as a Dr. shoved some asprin in the fellow's mouth) was I wished I had some of RNVS's trial stroke med....I would have shoved in the guy's mouth. If given within 6 hours after stroke, with no need of a scan, helps repair brain damage at the molecular level...antioxidents on steroids...I've always thought I'd rather have access to this drug,if needed, than the profits from trading the stock..molecule. I'm serious...But, that's not the real world.

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[sudden memory loss]

Interesting post, drug discovery is the process by which potential drugs are discovered or designed. In the past most drugs have been discovered either by isolating the active ingredient from traditional remedies or by serendipitous discovery.

[Assisted Living Facility]

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[christian louboutin]

That floats on high o’er vales and hills,
When all at once I saw a crowd,
A host , of golden daffodils;
Beside the lake, beneath the trees,
Fluttering and dancing in the breeze.

[air yeezy]

No matter how gluttonous devouring all the time, we need to breathe at this time, and strive to win our reputation, the sickle of time can not hurt us. - William Shakespeare

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