Tomato,
This whole area is very complex and fascinating, because it goes to the issue of where the best risk/return ratios are in biotech investing. There is no sensible answer to your question, but I'll still talk about the whole issue.
First, some basic drug "mortality" statistics from the FDA that have been quoted here before:
Testing in Humans
Phase 1
Number of Patients: 20-100
Length: Several months
Purpose: Mainly safety
Percent of Drugs Successfully Tested*: 70 percent
Phase 2
Number of Patients: Up to several hundred
Length: Several months to 2 years
Purpose: Some short-term safety but mainly effectiveness
Percent of Drugs Successfully Tested*: 33 percent
Phase 3
Number of Patients: Several hundred to several thousand
Length: 1-4 years
Purpose: Safety, dosage, effectiveness
Percent of Drugs Successfully Tested*: 25-30 percent
* For example, of 100 drugs for which investigational new drug applications are submitted to FDA, about 70 will successfully complete phase 1 trials and go on to phase 2; about 33 of the original 100 will complete phase 2 and go to phase 3; and 25 to 30 of the original 100 will clear phase 3 (and, on average, about 20 of the original 100 will ultimately be approved for marketing).
Next, my observation is that stock moves are asymmetric - a drug failure (even in an early stage) has more impact than a drug advancing to the next phase. Part of this may be skepticism about whether the drug should have been advanced - biotechs are notorious for not pruning sharply enough. In addition, a single drug failure causes investors to look at the rest of the company more skeptically.
An actual advancement of a drug to the next phase tends to be a non-event from a stock price standpoint. Mostly this is because results of the previous trials of the drug are likely already public, and so the advancement itself doesn't tell us much new. It's really the trial results that drive the stock price changes.
There was an argument made a few years back (maybe by someone at H&Q?) that the "sweet spot" for biotech investing is in the post-approval period. My own view is that one sweet spot is the post-approval dip we often see when the first quarter or so of sales are nothing fantastic, but you think the drug has long term potential. Renagel is the poster boy for this approach, with Pathogenesis' Tobi as the goat (sales growth suddenly slowed dramatically after a few quarters). Recently, SCIO has been a good example that I hope will turn out well.
It would be a very interesting exercise to go back and look systematically at the stock prices of the most successful biotechs like AMGN, IMNX etc. in their post-approval periods. Ideally, we'd need to back out movements in the overall biotech market.
Peter |
