For those who know or follow Adam, this will come as no surprise. He is neither short of rules nor opinion and is never shy in his vivid expression of either. But this rule is more than a simple expression of informed opinion. It was born of hard data analysis and has yet to be broken. In Adam’s own words, this is how he and his colleague (Mark J. Ratain) came to the rule they coined the Feuerstein-Ratain Rule:
[We] analyzed the outcomes of 59 phase III clinical trials of cancer drugs going back 10 years, stratified by the market value of the companies four months prior to trial results being announced. What we found was a remarkable difference between the market values of companies that had positive and negative announcements. (the list of companies/products used can be found here)
Here’s the rule in a nutshell: There is a 100% failure rate for phase III cancer drug trials conducted by micro-cap cancer drug developers.
They identified drugs that were undergoing evaluation in phase III trials or for regulatory approval by the US FDA between January 2000 and January 2009. They calculated the company value based on the roughly three months prior to the release of the data. They concluded that whether or not a company had pharma in place was not determinative of a drug’s success but rather that partnerships or acquisitions by Big Pharma can play a role in determining a drug’s success only in that these deals may increase the market value of the primary drug sponsor. That value was the determinative factor.
This is Adam’s summary of the analysis they did that led to the “”. Below are the important snippets from the analysis behind the rule:
The "Feuerstein-Ratain rule" is derived from an analysis of 59 phase III clinical trials of cancer drugs conducted over the past 10 years. We actually had no say whatsoever in the selection of cancer drugs used in the analysis. The list was put together by health economist Allan Detsky of Toronto's Mount Sinai Hospital and his co-authors as part of their paper published in the Journal of the National Cancer Institute suggesting that doctors entrusted with conducting late-stage cancer drug clinical trials are using advanced knowledge of the results of these pivotal studies to engage in illegal insider trading.
There were 21 companies on the list with market values of $300 million or less, with a 0% success rate in phase III cancer drug clinical trials.
So what interesting for us in cell therapy?
It is interesting to note that the is limited to oncology drugs and all the companies behind them were public. Adam has not – nor has anyone else to the best of my knowledge – looked at how the rule may or may not translate outside of oncology.
Of the cell therapy companies to have received market approval in US or EU in the past 10 years, one was public (DNDN) and one was still private (TIG) and went public shortly therafter in the same year. TiGenix was a private company and is not in oncology so the analysis arguably does not apply. However, Dendreon’s Provenge is an oncology ‘drug’. Dendreon had a market cap of about $430M in the 4 months before its ph III data was announced and as such would have fallen in the 18% likelihood of success category. That sounds about right.
I thought it might be interesting to do our own look at what the Rule might say about the pipeline of late-stage cell-based oncology trials. Following is a list of cell therapy companies currently in ph III or II/III for oncology:
* Trial not expected to complete until Q1 2014 so a lot could happen to the market cap in 2012/13. It also could be argued that this is not an oncology treatment as per original data set but a treatment of the side effects of the primary cancer treatment.
** Trial not expected to complete until Q1 2014 so a lot could happen to the market cap in 2012/13.
*** It could be argued that this is not an oncology treatment as per original data set but a treatment of the side effects of the primary cancer treatment.
+ It could be argued this is not a cell therapy though we would argue it is. Others might argue that as a phase II/III trial with only 60 patients this may not be powered to be a pivotal oncology trial.
^ Trial currently in “suspension” so this date may be pushed out or trial terminated. It also could be argued that this is not an oncology treatment as per original data set but a treatment of the effects of the primary cancer treatment. Others might argue that as a phase II/III trial with only 70 patients this may not be powered to be a pivotal oncology trial.
Conclusion: At the moment it looks like both NovaRx and ERYtech will go to their phase III data completion (June and October 2012 respectively) as private companies. To qualify under the rule, Cell Medica would have to go public within the year and/or Kiadis would have to go public within the next 25 months.
The only companies with cell-based oncology products currently in late-stage trials to which the Rule would apply are Molmed’s HSV-TK and Newlink Genetics’ HyperAcute Pancreas.
Assuming both MolMed and NewLink's trials progress as planned, we won’t know what they look like under the rule until around Sept 2013 at which time we can assess their market cap against the Rule. At the moment, it’s looking pretty bleak for both of them according to the Rule though at least the NLNK price has been going in the right direction of late.
Certainly one would expect trading volume to dramatically increase on both these as their trial completion dates near. It remains to be seen how this will impact price but they would have to dramatically increase in market cap (double or triple) to succeed as the Rule predicts.
Naturally, this is just one way of looking at the world and, of course, this rule - as with all rules - is meant to be broken.