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)
Specifically, the median market capitalization was approximately
80-fold greater for the companies with positive trials vs. companies with
negative trials. There were no positive trials among the 21 micro-cap companies
(companies with less than $300 million market capitalization) whereas 21 of 27
studies reported by the larger companies analyzed (greater than $1 billion
capitalization) were positive.
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 market value of primary drug sponsor 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 “Feuerstein-Ratain Rule”. 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.
Ratain and I used the same list of 59 cancer drug clinical trials,
re-analyzed by market value of the drug sponsors, to debunk Detsky's
insider-trading theory. That's how the "Feuerstein-Ratain rule" came
about, and we published our conclusions in the JNCI alongside Detsky's paper.
To restate our findings: No positive trials among the
21 micro-cap companies (companies with less than $300 million market
capitalization) whereas 21 of 27 studies reported by the larger companies analyzed
(greater than $1 billion capitalization) were positive
…
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.
The list also contained 11 companies with market caps between
$300 million and $1 billion. The clinical trial success rate for this mid-tier
or second strata group was 18%. (Two positive clinical trials out of 11.)
Lastly, there were 21 of 27 studies reported by the larger
companies analyzed (greater than $1 billion capitalization) that were positive,
or a 78% success rate.
So
what interesting for us in cell therapy?
It
is interesting to note that the Feuerstein-Ratain Rule 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.
