Dollars and Jens
Tuesday, December 02, 2003
Drug Pipelines
One of the blogs I've been reading fairly regularly lately is In the Pipeline by Derek Lowe*, who does research for a pharmaceutical company in New England. He has a recent entry of particular relevance to investors:
It's worth going over a few principles of biotech and pharma investing, as seen from an insider's standpoint. For one thing, most of the statements about the research pipelines at such companies are worthless. You really should understand the contempt that researchers have for most Wall Street statements about how their drug projects seem to be coming along. Now, I admit that a lot of that trouble can be traced to the worthlessness of most drug company pronouncements about said projects, but that's another key thing to know, isn't it?

For example, companies keep projects on the books long after they've gone to Drug Development Heaven. At best, they're hoping for something to revive the program somehow, and aren't ready to talk about the problems it's facing. (Sometimes they're not even ready to think about them; self-deception is as big a force in R&D as it is anywhere else.) At worst, they're trying to fake out their competition - and that works, for a while. But when you see something listed as "In Phase I Trials" for, say, three years, you can assume that something has, er, gone astray.

While I'm on the topic of self-deception, remember that it is almost unheard of for a company to undersell a clinical research program. By the time something makes it into advanced clinical trials, plenty of people working on it think that yes, they really are going to get to kick the football this time. And they're as disappointed as anyone else when it gets yanked away, again. I know that there are always those "forward-looking statements" disclaimers at the bottoms of the press releases, but no one reads them. They're background noise. No, you can assume that you are hearing the best possible case that can be made for the drug and for the data. If stock analysts go above and beyond what the company is already dreaming of, they're likely to have entered the realm of complete fantasy.
Stock analysts entering the realm of complete fantasy? Surely you jest.

* I assume that he's not the same Derek Lowe who pitches for the Red Sox, but I haven't actually had confirmation of this.

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