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Pastimes : All Clowns Must Be Destroyed -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (36910)	6/1/2000 5:06:00 AM
From: scott_jiminez	Read Replies (1) \| Respond to of 42523

Cobalt - The biotech insider trading article points out unquestionably disturbing behavior that should not be treated as a benign activity. Some of the pre-PIII run-up in stocks of approved drug is certainly result of due diligence, i.e. the accurate distillation of publicly available data. But the data in that paper cannot be pushed aside so easily. PubMed shows 11 papers published over past 11 years on this subject (http://www.ncbi.nlm.nih.gov:80/entrez/query.fcgi?CMD=&DB=PubMed search parameters 'insider AND trading'). Some quite revealing titles here, including a 1998 JAMA article (SEC slaps another researcher for insider trading. Securities and Exchange Commission) - the key word being 'another' - indicating that the SEC certainly does not see the problem as trivial. The newest study taps only one aspect of potential insider trading; as already noted, interpreting the message from pre-PIII approval trading is fraught with difficulty. IMO, while progression through PI and PII may not result in the high correlation for PIII success as one might expect, there are often signal flags. Substantial familiarity with the product(s) and the science may be required to discern these signals (see below for the questionable relevance of public domain data in this entire discussion). However, there are many other ways insiders, especially senior executives, could benefit from privileged information: IMO, the second most important event to impact a biotech (behind PIII approval) is science-related news, including collaborations and/or partnerships. I would be very interested to an equivalent study conducted for pre-news trading patterns: in this instance, the 'public domain' argument is greatly diminished: in the great majority of cases only the top echelons of management will be privy to the info. Obviously this is true for every public company; the fact that most biotechs are earnings-challenged places extraordinary importance on news announcements as a determinant of stock price action. This is a tempting situation to abuse. IMO, securities fraud is about to explode on to the biotech sector. 'Explode'?, you ask. Please refer to a number of my recent posts on the Ariad Pharmaceuticals thread: last week the University of Pennsylvania stopped clinical trials at its human gene therapy clinic (essentially closing the institute) following the death of a patient last fall and the revelations of numerous potential conflicts of interest by the head of the clinic in the subsequent investigation. 1. Message 13781634 2. Message 13782177 The ethical behavior in this sector is no more elevated than the society as a whole...and, in fact, may be worse (read: arrogance). Ethical behavior is referring to the judgement used by company insiders in response to PRIVATE, PRIVILEGED information and NOT their use of data in the public domain. That was the implicit, if not explicit, thrust of the paper you brought to our attention. And, needless to say, it was precisely BECAUSE these companies had reached phase III trials that concern associated with insiders profiting from NON-PUBLIC information was heightened. This formed the framework for the study - the premise of the hypothesis excluded companies and products failing to reach this stage. Any discussion involving potentially inappropriate insider trading relates to the use (and abuse) of PRIVATE, NON-PUBLIC, information. PRIVATE NOT PUBLIC. The involvement of publicly available PI and PII trial data in a discussion of potential insider trading abuses is distracting, if not irrelevant. To repeat, by definition, inappropriate insider trading, the topic of the article, involves the use of PRIVILEGED information.