Ayala Pharmaceuticals Inc (ADXS)

[Meishairwin]

Biotech investing probabilities/ risk...

I'm not saying the following is 100% accurate, it certainly is not, but it provides some general sense for the risks/ reward requirements in biotech investing. ADXS is past Ph2, so we are in a much better position on a pure probabilistic basis than many biotech companies, but still only 50/50 according to this general analysis...

From Biotech board by Biovest2K
http://www.investorvillage.com/smbd.asp?mb=58&mn=2546&pt=msg&mid=17066898

May the odds be forever in your favor

Here is some math to demonstrate why waiting pays in spec biotechs.
1. Roughly 5 out of 100 companies that do clinical research end up taking a drug from pre clinic to market. If you picked 100 companies and put $10 in each, you would spend $1,000 on the investment. So 95 of them would fail and you would lose $950. That means the 5 that succeed would have to go to $200. That would need to be a 1900% return on all 5 that succeed for you to just break even. That is a massive return you would need to shoot for.

2. If you wait till after just 1 successful clinical trial like a Phase 1, the odd go from 5% to 20% for success. I usually don't put a lot of faith in phase 1 trials since they are mostly designed just to see if the drug is safe for humans. They do some basic efficacy measurements, but they tend to be very off the mark since everyone in the trial is taking different doses. Even so, you would put $10 into 100 of these companies. 80 of them would fail and you would lose $800. The remaining 20 that succeed would have to go to $50. They would all have to go up 400% for you to break even. That is far better odds then example 1.

3. If you wait until you get good phase 2 data, then the odd go to over 50% for success. Let us assume you put $10 in each of these companies for 100 companies. You would have a $500 loss from the 50 that fail. That means the remaining 50 would have to double for you to break even. Now the odds are much more in your favor. Any good company that makes it to market should double at least. That obviously depend on the size of the drugs market. Most of them should go up at least a few hundred percent over the long term and even more if one success leads to more.