Replies to post #5977 on Biotech Values

[DewDiligence]

>>The first point [program-survival bias] makes absolute sense, but the second is criminal. I would believe it of some of the scams, but I don't think that the implication that a substantial number of failed trials is a consequence of CEOs pulling a fast one makes sense. It's a bit too cynical for me<<

Bob, let me be so bold as to speak on zebra’s behalf.

This is a matter of degree!

Zebra is not suggesting (nor am I) that the development programs of many small biotechs are outright scams. What small biotechs may be inclined to do, however, is continue developing a drug that would not meet the minimum probability-of-success threshold imposed by a big pharma.

There are countless examples. NVS dropped the development of TTP’s schizophrenia drug, Iloperidone, when the drug showed QTc-prolongation in late-stage trials and NVS concluded that it was unmarketable. Yet TTP wanted Iloperidone back to continue development (and eventually out-license it to a new partner). BMY decided after a phase-1 trial that OXGN’s CA4P was too toxic, but OXGN was happy to take it back and continue developing it in-house (without much concrete success so far). Recently, AMGN pulled out of its 50/50 Alfimeprase partnership with NUVO (which led NUVO’s CEO to boast that NUVO now has a larger ownership percentage:-) ). No formal reason was given by AMGN for pulling out, but my take is that AMGN thinks the therapeutic window of Alfimeprase is too narrow. Had Alfimeprase been wholly owned by AMGN, I think the program might have been quietly discontinued.

Zebra’s main point was that small biotechs frequently take on a lot of program-development risk because they will not assent to the alternative. Which brings us to the issue of corporate-survival bias: faced with the choice of plowing ahead with a very high-risk drug-development program or shutting down operations, BOD’s are not apt to opt for the latter.