After my article on whom biotech investors should be listening to, Ron Renaud (@biotech69) sent me this nice note via Twitter: "Interesting piece on MF. In addition to the cautions of talking to patients, doctors, analysts (I used to be one) -- you forgot management!"

Yes, I did.

Investors should be listening to every conference call management gives outside of investment conferences, which -- with a few exceptions -- tend to be rehashed presentations without any new information.

Management is the best source of knowledge about a company and its drugs, but as with all the other disseminators of information, you have to look at the motives.

Job security
How often do you see a drug fail a pivotal clinical trial, and the CEO comes on the conference call and announces that the company is shutting down, selling all its assets, and returning the remaining capital to its shareholders? Can you name even one?

Instead, there's always one more clinical trial to run in a subset of patients for whom the drug worked -- one more backup plan. In a lot of cases, I think the plan has more to do with self-preservation than faith in the drug candidate. I can't really blame the management for doing this; I certainly wouldn't want to cause my own unemployment.

But that doesn't mean you have to stay invested in the company, watching the remaining capital wither away on a long shot.

Love
They say you shouldn't fall in love with an investment. That goes for CEOs and their drugs, too.

Take Alfred Mann, for instance. As the largest shareholder in MannKind (MNKD -1.68%), it's safe to assume his CEO job is secure. His hype of Afrezza appears to come from his love of the technology.

He just can't fathom that the company's inhaled insulin, Afrezza, wouldn't work or that patients wouldn't want to take it. A few years ago, when the company announced that it would have to run a clinical trial comparing its old MedTone delivery device to the new Dreamboat one, an analyst asked what the company would do if MedTone ended up being superior to Dreamboat. Mann responded: "First of all, the answer is it won't be superior. The Dreamboat device is clearly superior in many ways." There was no part two.

Admittedly, he was right, but with that kind of cocky arrogance, it's hard to know how much faith you should have in Mann's opinion.

Straight shooters
I wish more companies had a plan like Alkermes (ALKS 0.92%) had going into its phase 2b trial of opioid-induced constipation drug, ALKS 37. The biotech had pre-specified criteria that the trial had to meet to justify starting a late-stage program. The drug didn't meet those requirements, so the company decided to drop development.

Of course, ALKS 37 isn't Alkermes' lead drug; it has a few drugs on the market, so the failure wasn't a major issue for the company.

Renaud, who's the president and CEO of Idenix Pharmaceuticals (NASDAQ: IDIX), had to make that difficult decision when Idenix dropped development of its lead hepatitis C compound IDX184. The FDA put the drug on clinical hold because of its similarity to Bristol-Myers Squibb's (BMY 0.43%) BMS-986094, which caused cardiac issues.

The company could have dragged it out, trying to convince the agency that IDX184 was different enough from BMS-986094 to justify lifting the hold, but the company decided to cut its losses and move on with the rest of its pipeline.

I'm sure it wasn't an easy decision, but it was probably the best decision for the company and should earn Renaud some trust with investors.